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German court gives ESM a green light

Sept. 12, 2012 at 12:55 PM   |   Comments

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KARLSRUHE, Germany, Sept. 12 (UPI) -- A German court said elected officials had the right to make the country's budget decisions, paving the way for formation of an international bailout program.

The constitutional court in Karlsruhe, Germany, had the fate of the European Stability Mechanism in their hands, given Germany is the eurozone's largest economy and would be by far the largest contributor to the bailout program, which will act like a regional International Monetary Fund, The New York Times reported Wednesday.

The ruling was widely expected, but was still met with applause in Strasbourg, France, where the European Parliament was in session.

In Karlsruhe, court president Andreas Vosskuhle said, "You can see it was an intensive discussion," to explain a slip of the tongue made when announcing the verdict.

The verdict is a clear disappointment to anti-eurozone voters in Germany who complain that German taxpayers are bailing out other countries and a victory for Chancellor Angela Merkel who has argued that the eurozone -- the 17 countries that share the euro as currency -- must stay intact.

The ESM, which will begin as a $644 billion fund, is intended to be a permanent rescue program that will replace the temporary European Financial Stability Facility.

But some believe the formation of a backup system for countries struggling to climb out of debt is just one of many steps to tighten the eurozone's unity.

The European Commission, for example, was presenting its case Wednesday for formation of a central banking regulator for the eurozone.

"Germany is decisively true to its responsibility in Europe as the largest economy and a reliable partner," Merkel said. But Guntram Wolff, deputy director of Bruegel, a think tank in Brussels, said the decision implied more than that.

"We are creating an institution that will have its own dynamics, become more and more powerful. This would be the start of a new and stronger European core," Wolff said.

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