German court sets limits on Euro bailouts

THE GERMAN constitutional court delivered a welcome decision for chancellor Angela Merkel yesterday, ruling that Berlin’s decision to fund a rescue of Greece is legal.

But the news was double-edged: the court also decided that the government will have to consult the budget committee of Germany’s lower house in order to spend any more on bailouts.

That will slow down the process for approving new rescues, but is less dire than feared for Merkel, who could have been forced to hold a parliamentary vote to approve new aid packages.

The ruling also gives Germany’s ruling coalition a way to stem the rebellion among its members by legislating to enshrine the budget committee’s role in any future bailout decisions.

In mock-votes earlier this week, 25 members rebelled by voting against or abstaining on Greece’s new rescue deal, but some might be persuaded to support it if they believe that parliament is guaranteed a role in further decisions.

Analysts at Citi gave a cautious welcome to the court ruling but warned: “Other euro area states might follow the German [and Finnish] example and therefore the approval of EFSF [European Financial Stability Facility bailout] packages is likely to become even more lengthy.”

Already, ratifying Greece’s latest €109bn bailout could take until December, when the Slovakian parliament is currently due to vote, although European Central Bank (ECB) president has called for this process to be accelerated.

In parliament following the ruling, Merkel told MPs: “We must make it very clear to people that the current problem of excessive debt built up over decades, cannot be solved in one blow, with things like euro bonds or debt restructurings. No, this will be a long, hard path, but one that is right for the future of Europe.”

Dutch prime minister Mark Rutte laid down a hard line last night, arguing that Europe needed a “commissioner for budgetary discipline”, and that member states that break fiscal rules could be “put under guardianship” by Brussels authorities.