March 4, 2021

Court Rejects Challenges to German Euro Bailouts

The decision was viewed by some analysts as a rare triumph for Chancellor Angela Merkel and seemed to place fewer restrictions than some had expected on her ability to react to the European debt crisis. At the same time, the high public standing of the court should lend broader legitimacy to government efforts to shore up the European currency.

But, other analysts said, the ruling could hamper Mrs. Merkel’s power to take quick measures.

The court’s president, Andreas Vosskuhle, said the ruling did not represent a “blank check for additional rescue packages.”

Speaking at a parliamentary budget debate in Berlin, Mrs. Merkel said the ruling had “absolutely confirmed” her government’s “transparent” handling of Europe’s debt crisis in close consultation with Parliament. “That is exactly the path we have followed,” she said.

Mrs. Merkel again underlined her country’s commitment to the single currency and European integration, saying the euro was “much more than a common currency.”

“If the euro collapses, so does Europe,” she said, adding that “Germany’s future is inseparable from Europe’s future.”

Closely watched by nervous markets, the court ruled that the government must seek the approval of Parliament’s budget committee before making money available for future bailouts of European countries struggling under mounting debt burdens.

“This was an important victory for Merkel’s government,” Christel Aranda-Hassel, an economist at Credit Suisse, said in a note. “At the same time,” she added, “the court strengthened the hand of parliament.” The need to seek approval of the Bundestag’s budget committee for future aid “will only make the process to rescue the euro more cumbersome at a time when speed is of the essence.”

Indeed, said Jan Dubsky, a euro area economist at the Royal Bank of Scotland in London, “it’s not going to be such a lengthy process as feared, but there is still an approval process necessary.”

The euro rose slightly on currency markets as word of the ruling emerged, but German Bund futures extended their losses, Reuters reported, quoting one unidentified trader as saying that while the broad outlines of the decision had been widely expected, markets were still waiting to parse the details. The DAX Index in Germany posted gains, along with other European stock markets.

Jessica Koch, an analyst at the Center for European Policy in Freiburg, Germany, said the decision could have implications for future attempts by euro zone governments to cooperate more closely in fiscal policy, for example by jointly issuing debt in the form of “euro bonds.”

The ruling, consistent with previous court decisions, means that “certain decisions on revenue and expenditure must remain in the hands of Parliament,” Ms. Koch said. “That is fundamental for the democratic state. You can transfer competencies to a certain extent. You can’t transfer them completely.”

In Parliament on Wednesday, Mrs. Merkel renewed her opposition to the idea of issuing eurobonds as a means of solving the debt crisis. “Eurobonds are the way to a union of debtors,” she said, calling the idea “the wrong answer. That is why we will not go down this route.”

The court rejected three appeals against the legality of earlier bailouts, which have stirred a furious political debate among Germans. The suits had been brought by a coalition of German lawmakers, economists and business executives who argued that Germany’s participation in loans and support funds for Greece undermined Parliament and infringed constitutional provisions underpinning the country’s democracy.

German parliamentarians welcomed the ruling. “I am particularly pleased,” Wolfgang Bosbach, a leading member of Mrs. Merkel’s governing Christian Democrats said, adding that he hoped would end the divisions inside the center-right coalition over the rescue package and speculation on whether Greece should be expelled from the euro zone.

Nicholas Kulish reported from Karlsruhe, and Alan Cowell from Paris. Judy Dempsey and Victor Homola contributed reporting from Berlin, and Jack Ewing from Frankfurt.

This article has been revised to reflect the following correction:

Correction: September 7, 2011

An earlier version of this article misstated the university where Donald P. Kommers is emeritus professor of political science and law. It is Notre Dame, not Duke.

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