09/07/2011 04:22 PM
German Euro Ruling
Karlsruhe Demands Greater Parliamentary Role in Bailouts
By David Böcking in Karlsruhe
Germany's highest court has rejected three lawsuits against euro bailout measures, but its ruling also strengthens the role of the German parliament in determining aid for heavily indebted euro-zone countries. The new procedures are more democratic, but they could also lead to fresh turbulence on the finance markets.
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The scenario repeated itself when the financial crisis turned into the sovereign debt crisis. On May 7, 2010 the Bundestag gave its blessing to guarantees of up to €22.4 billion that Germany contributed to the first bailout of Greece. On the very same day, euro-zone leaders agreed to a further rescue package for the entire common currency zone that would be approved by the Bundestag two weeks later. This time, Germany's share would be up to €123 billion. This month, it is supposed to be increased to a maximum of €211 billion.
The current level of participation by the Bundestag was still too low for the court. Under existing law, the government must simply "seek" the approval of the parliamentary budget committee for new guarantees. If necessary, however, the committee may also only be informed after the fact. In the opinion of the judges, that was endangering the budgetary autonomy of the Bundestag. The government is now obliged to ask the committee in advance, if at all possible.
Because of these concerns, German Finance Minister Wolfgang Schäuble, a member of Chancellor Angela Merkel's conservative Christian Democratic Union (CDU), had fought against the Bundestag being given far-reaching powers. In contrast, Chancellor Merkel had said even before the court's decision that the Bundestag would be more involved than had previously been the case. The Karlsruhe ruling now makes the promise an obligation -- albeit within fairly narrowly defined limits.
Legal experts welcomed the verdict: "It is correct that the rights of the Bundestag be strengthened," said Peter-Christian Müller-Graff, professor of European law at the University of Heidelberg. "The core message is: There is no automatism -- and that is also very reasonable." That the budget committee must approve every step in the future is "a shift in the power between the federal government and the Bundestag." In practice, Müller-Graff expects that the government will agree with parliament in advance on future votes on major international decisions. "That at least would be smart."
Plaintiffs Could Continue Fight
Economists were also pleased with the verdict. "The ruling is likely to facilitate the euro rescue rather than make it more difficult," said Holger Schmieding, chief economist at Hamburg-based Berenberg, a private bank. Because approval is only necessary from the Bundestag's budget committee, the government will still be able to act quickly.
However, the judges expressed skepticism over the further deepening of integration within the euro zone when they referred to the violation of the so-called no bailout clause in the Maastricht Treaty under which the EU countries cannot be mutually liable for each other's debts. And they were also critical about the purchase of government bonds from indebted countries, as the European Central Bank has done.
It still remains unclear whether, in the future, the EFSF rescue fund will be able to buy up government bonds as planned, without first consulting the Bundestag. If this is called into question, it could lead to new problems in the financial markets. "If the decision means that bond purchases also have to be confirmed in advance, that would be fatal," said Henrik Enderlein, professor of political economy at the Hertie School of Governance in Berlin.
The court's critical comments may well encourage the plaintiffs to continue fighting against the euro and the rescue packages. In any case, the law professor Karl Albrecht Schachtschneider seemed energized on Wednesday. While he carefully showed off several books by euro opponents to the cameras, he was wearing black sports shoes with a suit -- as if he was ready to sprint to the next hearing.
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