CHANCELLOR ANGELA Merkel has suggested that euro zone members in breach of deficit rules should, in future, answer before the European Court.
She described as a “complete confirmation” of her euro zone strategy yesterday’s ruling that German bailout participation last year was constitutional.
Germany’s highest court in Karlsruhe dismissed challenges to the bailout packages, but ruled that future contributions from Berlin would require the backing of the Bundestag’s budgetary committee.
The German leader, wearing black after the death of her father on Friday, warned the Bundestag yesterday that the euro zone needed an urgent “rethink” of half a century of debt-driven politics.
“It’s a paradox that almost all violations of EU rules … lead to verdicts from European Court of Justice, but that violations of the Stability and Growth Pact do not,” said Dr Merkel in a vigorous parliamentary address. “That’s something we’ll have to think about.”
She insisted that stabilising the single currency by completing European integration was the “political challenge for our generation”.
Yesterday’s constitutional court verdict arose from claims that German contributions to last year’s euro zone bailouts – € 22.45 billion in ad hoc assistance to Greece and € 147.6 billion to the European Financial Stability Facility (EFSF) – undermined German budgetary law.
The German government argued that its bailout contributions were necessary to preserve euro zone stability and, because of their limited and conditional nature, in keeping with constitutional rules.
In Karlsruhe yesterday, complainants said they were satisfied, if not surprised, by the verdict.
“The court ruled in a Solomonic fashion,” said economist Joachim Starbatty, one of three complainants. “It rejected our complaints but then confirmed what we said: that national budgetary rights cannot be pruned back and that national parliaments cannot disempower themselves.”
Dr Merkel’s junior coalition partner, the the Free Democrats (FDP), said the Karlsruhe verdict had ruled out a pooling of euro zone debt, so-called eurobonds.
“It’s a clear rejection from the court,” said Otto Fricke, FDP budget expert.
However Frank Walter Steinmeier, parliamentary leader of the opposition Social Democrats (SPD), said this was not the case, describing the government’s continued opposition to eurobonds as lacking credibility.
“None of your positions have lasted longer than six months,” he said in a rowdy debate.
Finance minister Wolfgang Schäuble said he hoped yesterday’s court verdict had settled the dispute in Germany over euro zone bailouts.
“It doesn’t change the fact that decisions in the euro zone will remain difficult,” said Mr Schäuble.
However he welcomed that the ruling “had left untouched the emergency regulation whereby one can, if necessary, get permission in retrospect” for bailouts from the Bundestag budgetary committee.
Government officials expressed optimism that yesterday’s ruling will help Dr Merkel win a parliamentary majority from her backbenchers when they vote later this month on expanding the scale and scope of the EFSF.
The Karlsruhe ruling neither addressed the issue of eurobonds, government officials said, nor had it changed the official opposition to pooling euro zone debt.
“At the moment here, eurobonds are seen as a political evil,” said one government official. “For Mr Schäuble, they are the last cherry on the cake of fiscal and budgetary integration. But by the time we get that, nobody will need eurobonds.”
The court verdict pushed up the euro against the dollar and helped Frankfurt’s DAX blue-chip index rise four per cent after recent losses.
“The market can live with the verdict,” said Mr Rainer Sartoris, economist with HSBC Trinkhaus. “It’s an important point that the budgetary committee and not the entire Bundestag has to vote . That will make it easier to reach decisions.”
By late afternoon, however, market gains were lost as rumours began to circulate of a fresh constitutional challenge: this time to the permanent bailout mechanism, the ESM.