German court removes hurdle to euro zone bailout fund

Wed Sep 12, 2012 10:37am EDT
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By Annika Breidthardt and Diana Niedernhoefer

KARLSRUHE, Germany (Reuters) - Germany's Constitutional Court gave a green light on Wednesday for the country to ratify Europe's new bailout fund, boosting hopes that the single currency bloc is finally putting in place the tools to resolve its three-year old debt crisis.

In an eagerly anticipated ruling that has had investors on tenterhooks for months, the court in the southern city of Karlsruhe insisted the German parliament be given veto rights over any increase in Berlin's contribution to the 700 billion euro European Stability Mechanism (ESM).

But the strings it attached to its endorsement of the ESM and a separate European pact on budget rules were less onerous than many had feared. The euro shot up to a four month high against the dollar and global stocks rose to a five month peak.

"This is a good day for Germany and a good day for Europe," German Chancellor Angela Merkel said in a speech to parliament.

Germany is the only country in the 17-nation euro zone that has not ratified the ESM, an important tool to stem the crisis that has forced bailouts of Greece, Ireland and Portugal, and is now threatening big countries like Italy and Spain.

Had the court upheld complaints against the rescue fund by thousands of German plaintiffs it would have delayed its implementation or even doomed it, dealing a devastating blow to policymakers and sending markets reeling.

European Central Bank (ECB) President Mario Draghi announced plans last week to buy "unlimited" amounts of government bonds issued by stricken euro states like Spain and Italy in order to reduce their borrowing costs.

That plan fuelled optimism in the markets, but it was contingent on the ESM coming into force. Following Wednesday's ruling, German Finance Minister Wolfgang Schaeuble said he expected the rescue fund to be operational within weeks.   Continued...

President of the German Constitutional Court (Bundesverfassungsgericht ) Andreas Vosskuhle (C) arrives with other judges to give the ruling on the European Stability Mechanism (ESM) in Karlsruhe September 12, 2012. REUTERS/Kai Pfaffenbach