German court ruling sparks hope for eurozone

13/09/2012

Germany's Constitutional Court gave the green light on Wednesday for the country to ratify the European Stability Mechanism, a key tool for solving the eurozone crisis.

By Svetla Dimitrova for Southeast European Times in Sofia -- 13/09/12

European national flags flutter near an euro symbol outside the EU Parliament in Brussels. [Reuters]

A ruling by the German Constitutional Court on Wednesday (September 12th), lifting the barrier for Berlin's ratification of the eurozone's permanent rescue fund, the European Stability Mechanism (ESM), and the European fiscal treaty, was met with applause at home and abroad.

Wednesday's ruling came in response to legal challenges, aimed at preventing German President Joachim Gauck from ratifying the ESM and the fiscal pact, viewed as critical for resolving the crisis in the 17-nation eurozone.

While rejecting the challenges, the court said that Germany's contribution to the ESM cannot exceed 190 billion euros. Any increase in the country's liability above that ceiling would require the express approval of the German parliament, judges said, stressing that both houses of the legislature should be kept fully informed.

The court's move raised hopes in crisis-hit Greece.

"If decisions are made at the political level, Greece will be able to breathe," George Tzogopoulos, a research fellow at the Hellenic Foundation for European and Foreign Policy in Athens, told SETimes. "This does not mean the country should not remain committed to reforms. The climate can change again at its expense. It's really the last chance now," he said.

Antonis Klapsis, head of research for the Konstandinos Karamanlis Institute for Democracy in Athens, the think tank of the ruling New Democracy party, told SETimes the court's ruling was a lifesaver for Greece.

"A negative decision would have had catastrophic consequences for the stability of the euro and possibly for the stability of EU as a whole. It has become clear that what Europe needs is more solidarity," he noted.

With Germany -- Europe's biggest economy and the biggest contributor to bailouts – now free to keep propping up troubled eurozone economies, he said, "It is almost certain that other North European countries which are sceptical will go ahead with the plan."

Daniel Daianu, a former Romanian finance minister and a former MEP, also hailed the court's ruling, saying it was "of enormous significance."

"For it brings into German legality the ESM at a time when not a few in Germany question the special operations of the European Central Bank, which have been initiated under Mario Draghi's manade, not to mention fiscal transfers," he told SETimes.

"It also validates, on legal terms, the leeway Germany has to support other countries in case of need ... Not least, a negative decision of the court would have been a terrible blow to the eurozone, with wide-ranging disruptive effects."

The constitutional court's 85-page ruling called on Berlin to ensure that the country would be able to opt out of the agreement in the event of disregard for its interests.

"The Federal Republic of Germany must make it clear that it does not want to be bound to the ESM treaty as a whole if any reservations it might have should prove ineffectual," Chief Justice Andreas Vosskuhle said reading the decision.

Germany is now set to become the last ESM member state to ratify the treaty, before the mechanism, which has a maximum lending capacity of 500 billion euros, becomes operational next month.

European Commission (EC) President Jose Manuel Barroso and Luxembourg Prime Minister Jean-Claude Juncker, the chair of the Eurogroup of eurozone finance ministers, both hailed the long-awaited decision. It was also met with applause by the members of the European Parliament, who were attending a speech by Barroso at the time.

Daianu drew a parallel between the German court's ruling and Barroso's speech at the EP, voicing support for the EC president's call for a broad public debate on the transformation of the EU into a "federation of nation states" and the creation of a banking union and a fiscal union.

"In my view it is critically important that top politicians, all across the EU, make a case for more Europe, for a deepening of integration that should go beyond the Fiscal Treaty. For the latter is not synonymous with a fiscal union and would not assist a banking union properly," he said.

The crisis has affected businesses not only in the 17-nation club, but in the other EU countries that have not joined yet.

Rada Marinova, 54, owns of a small advertising company in Sofia. She had five employees when the crisis began. Today, she's all alone.

"My business has been badly hit by the crisis. Things started deteriorating in late 2008, and then when the eurozone crisis began things only continued to get worse," she told SETimes.

"My business has shrunk about six-fold over the past three years. So I very much hope that the final ratification of the ESM will help prevent further deterioration, as life has become very difficult for us in Bulgaria, too, even if we are not in the eurozone."

SETimes correspondent Andy Dabilis in Athens contributed to this report.

This content was commissioned for SETimes.com.