Markets could react badly if German MPs are granted further parliamentary controls, writes DEREK SCALLYin Berlin
WITH A swish of red silk, eight German constitutional court judges will sweep into their wood-panelled chamber this morning to deliver their verdict on last year’s euro zone bailouts.
In reality, however, they are ruling on the future of European monetary union.
With the eyes of all EU governments – and world markets – on their Karlsruhe courtroom, the judges are unlikely to do anything dramatic. Instead they are expected to rule that Berlin acted constitutionally by contributing €170 billion to last year’s bailout funds for Greece, Ireland and Portugal.
Based on previous rulings, however, the court may insist on further parliamentary controls for German MPs before legislation to expand the size and scope of the EFSF bailout fund goes before the Bundestag on September 29th.
If these controls are perceived as too cumbersome by markets, the ruling could have a negative effect on the single currency.
“The judges are conscious that they are walking a tightrope,” said Prof Uwe Kranenpohl, a political scientist and author of a study of the court’s rulings.
The complainants, including a backbencher from Chancellor Angela Merkel’s government, say German bailout contributions violate German national law and the “no bailout” clause of the European treaties.
In oral hearings in July, they claimed German MPs were railroaded into backing rescue measures last year without realising the consequences for citizens, such as a loss in the value of the euro. They argued the MPs had, in effect, signed off on future federal income and were thus in breach of budgetary law.
German finance minister Wolfgang Schäuble argued at the hearing that the rescue measures were necessary and justified to prevent financial market contagion in the euro zone.
During the hearing, the judges insisted that their role was neither to rule on the economics of bailouts nor the European legal dimensions of the practice. Instead they demanded proof that the rights of German citizens had been infringed.
Though the judges insist they are not political figures, the case has cast a huge shadow over Berlin’s bailout strategy. With the “no-bailout” rule on her mind, and Karlsruhe breathing down her neck, Dr Merkel held out against backing Greek aid, and later the EFSF, until the last possible moment – and then only after negotiating tough terms and a limited life-span for the loans.
Only then, she surmised, would the court believe the assistance was of a limited and conditional nature to prevent a systemic threat to the euro zone – permitted by a clause in treaties.
Today’s verdict is the latest chapter in the court’s often prickly relationship with the German federal government, and its stewardship of the European integration process.
In successive “yes, but” rulings, Karlsruhe judges have always backed European integration, but on condition that German citizens’ rights are not diminished.
“On European affairs, Karlsruhe barks a lot but rarely bites,” said Prof Kranenpohl. “It would be unthinkable that the court would not keep pace with a step of European integration as agreed by the German government.” Court watchers predict the verdict will call for a healthy balance between the need for a flexible, quick-reaction EFSF – to calm markets – and the obligation for parliamentary control over German contributions which could reach two-thirds of the federal budget.
The ruling is likely to expand on the Bundestag controls it demanded for German European policy, as outlined in the 2008 court ruling that cleared the Lisbon Treaty for ratification. That ruling was highly controversial for listing core national competences, such as security and social welfare, which the court said could never be transferred to Brussels.
“The court tends to do bold sallies and then beat a retreat,” said Dr Gavin Barrett of UCD law school. He predicts a more circumspect verdict but suggests the court’s ring-fencing of national competences could prove problematic in the future.
In exchange for backing a permanent bailout mechanism, Berlin is calling for euro zone members to pool fiscal and budgetary competences.
“With its Lisbon ruling,” said Dr Barrett, “the constitutional court left a lot of mines that could be deeply problematic when trying to advance European integration in the future.”