German court backs eurozone's ESM bailout fund

Germany's top court has rejected calls to block the permanent eurozone rescue fund - the European Stability Mechanism (ESM) - and the European fiscal treaty.

But the Constitutional Court imposed conditions including a cap on Germany's contribution, which it said could only be overruled by the German parliament.

The German government welcomed the decision, while markets rose in relief.

Critics had argued that the ESM commits Germany to potentially unlimited funding of debt-ridden eurozone states.

Some 37,000 people had signed a petition to the court asking it to block the ESM, and make it subject to a referendum.

Since Germany is due to contribute 27% of the fund, it cannot proceed without German ratification.

But, after weeks of deliberation, the court's Chief Justice Andreas Vosskuhle said it "rejected the injunctions", since there was a "high probability" that the ESM did not violate the constitution.

However, he said ratification of the treaty could only be allowed under certain conditions.

He continued: "No rule of the treaty must be interpreted in a way which would result in higher payment obligations by Germany, without the consent of the German representative."

Correspondents said that means that any future increase in the size of the 500bn-euro (£400bn) fund, or of Germany's contribution, could only be permitted with the express agreement of Germany's parliament.

When added to the money already committed to the existing temporary fund, Germany is liable for about 190bn euros.

'Smart decision'

The decision clears the way for Germany's President, Joachim Gauck, to sign the ESM into law.

Correspondents said there would be huge relief in Brussels and European capitals at the verdict.

Spanish, Italian and German share indexes all rose after the ruling, while the euro continued its recent gains to post a hit a new four-month high against the dollar, at $1.29.

The borrowing costs on Spanish and Italian 10-year bonds fell.

Germany's Foreign Minister, Guido Westerwelle, welcomed the ruling as "a smart decision in the pro-European spirit of our constitution".

"The first light at the end of the tunnel is visible," he said.

"We must not relent in our decisiveness to overcome the debt crisis with budgetary discipline, orientation toward growth and European solidarity."

Source: BBC (12/09/2012): http://www.bbc.co.uk/news/world-europe-19567867