German Constitutional Court ratifies ESM bailout. But that won’t save the euro
By Thomas Pascoe
September 12th, 2012
The German Constitutional Court has ratified the eurozone bailout package. The bill will now be signed into law.
At issue was the legal matter of whether the permanent bailout fund which the eurozone nations had established (the European Stability Mechanism) was in keeping with the German constitution.
The ESM is a scheme which allows joint funds to be spent buying debt directly from governments. These governments would request help after finding it too expensive to borrow from the market. Unlike the OMT (see here for an explanation), its potential size is limited to €700bn. Germany will take on 27.15pc of these contributions, giving it a maximum liability of €190bn. Of this sum, €80bn (or €21.72bn for Germany) must be paid up front to the ECB.
The German constitution provides that the German government and they alone may determine the national budget.
Membership of a pact like ESM will oblige the German government to contribute to bailouts of any European nation which qualifies, without requiring direct approval from either German house of parliament. Opponents therefore argued that Germany would lose sovereignty over its budget, and therefore the pact was unconstitutional.
Proponents won the day by arguing that the consent of the legislature and executive meant that ESM monies had already been subject to due democratic process.