"Nuisance" German court may exact price for euro approval
* German judges may take months to rule on ESM, fiscal pact
* Constitutional Court has not blocked bailouts in past
* Markets and politicians frustrated at delayed verdict
By Stephen Brown and Madeline Chambers
BERLIN, July 11 (Reuters) - Germany's top court, which has already proved a "nuisance" by delaying Europe's newest tools for fighting the debt crisis, is likely to set conditions for their approval that could go as far as demanding a referendum.
"It is our task to be a nuisance when it comes to European policy and integration," is how one judge defined the role of the Constitutional Court, which on Tuesday defied pressure for a snap verdict to allow Germany to ratify the crisis measures. The judge agreed to discuss the role on condition of anonymity.
The court in the southwestern city of Karlsruhe could take as long as three months to rule on the already delayed European Stability Mechanism (ESM) - the euro zone's permanent rescue fund - and the fiscal pact for budget discipline in Europe.
This uncertainty is infuriating Angela Merkel's government, which must however hold its tongue when talking about Germany's version of the Supreme Court, set up in 1951 to avoid a return of Nazi-style tyranny and keep checks on chancellors' power.
The court has a history of testing leaders' patience. West Germany's first post-war chancellor, Konrad Adenauer, called it "the dictator of Germany".
But while the government and markets are optimistic Germany will eventually be allowed to ratify the ESM - which boosts the euro zone's firewalls against contagion by the debt crisis - and the fiscal pact, the court may decide that these laws strain the limits of German law so much they should be put to the vote.
The court has so far limited its rulings in the debt crisis to approving bailouts while "wagging a finger" at the government to consult parliament more fully - but it may now decide to make a stand, said public law professor Matthias Kumm.
"It now has a reputation of being a court that barks but doesn't bite. Some members of the court don't like that description and are highly inclined to do something that makes an impact," said Kumm, from Berlin's WZB social research centre.
This could involve giving the green light to the emergency legislation - on condition that the people are consulted first.
The Constitutional Court's president, 48-year-old Andreas Vosskuhle, is an avowed fan of a "federal Europe" who has said that while the German people want "a strong Europe", they also want to directly influence it.
Another crucial figure among the eight judges - out of the total 16 - who sit on the court's Second Senate that will decide on the ESM and fiscal pact is Peter Huber, the judge whose job it is to draw up the draft of the senate's findings.
In his current role and previously as a law professor in Munich, Huber has championed the idea of a referendum on Europe if more powers are to be shifted to Brussels.
Debate among the eight judges who include academics, lawyers and even a former state premier, will be intense when they shed their ceremonial red robes and caps to meet behind closed doors.
Vosskuhle describes the atmosphere as "almost monastic", but politics professor Tanja Boerzel said judges "had to be aware of the implications this all has for financial markets" and might move quickly now they have made their point.
With approval by a so-called "constitutional majority" of more than two thirds in both houses of parliament, the new laws essentially had all the democratic legitimacy they needed, said the Berlin Free University professor.
But by floating the option of a "very thorough summary review" taking up to three months, and then approving the laws, Vosskuhle would help silence "the populists trying to capitalise on the euro crisis" for political ends, Boerzel told Reuters.
For prominent Bavarian eurosceptic member of parliament Peter Gauweiler, a backbencher from Merkel's conservatives, it is more a question of the government "being pushed around by hysterical markets".
Finance Minister Wolfgang Schaeuble acknowledged before the court on Tuesday that markets are "extremely anxious" and any uncertainty gives rise to questions "like 'is Europe able to take the decisions needed to overcome this crisis of confidence with the necessary reliability and within a reasonable time?'."
The ESM, which would boost the euro zone's firewalls against debt crisis contagion to 700 billion euros, needs ratification by states representing 90 percent of its capital to take affect - meaning it cannot be launched without German blessing.
The plaintiffs, including 12,000 ordinary citizens, euro-sceptic academics and dissidents from Merkel's own coalition and the hardline Left Party, essentially argue that the rescue fund and the fiscal pact would undermine German lawmakers' right to decide on the national budget, in violation of the constitution.
In earlier rulings on Europe - on the Lisbon Treaty in 2009, and on Greek loans and European Financial Stability Mechanism (EFSF) in 2010 - Karlsruhe got a reputation as a thorn in the side of the euro zone by insisting on the rights of the Bundestag.
But it also rejected injunctions against the bailouts and ruled that the EFSF did not violate parliament's budget rights. Even February's ruling on fast-track approval of EFSF operations by a special panel of nine members of the Bundestag gave it the go-ahead when confidentiality is required for market operations.
Commerzbank's chief economist Joerg Kraemer said he believed that "in the end the Federal Constitutional Court will not veto the ESM/fiscal compact", though it could take a few months.
He expects the court to insist further on full parliamentary consultation, while saying this would be "more of a fig leaf and will not derail the ESM/fiscal compact".
Kumm at Berlin's WZB said it was highly unlikely the court would block the ESM and fiscal pact, but cautioned that some of the judges were "very inclined" to push for a referendum first.
"Whether or not the pressure is building to such an extent that they will ultimately refrain from doing this is a question that is impossible to answer," said the professor.
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