September 3, 2012 / 3:22 PM / 6 years ago

UPDATE 1-German FinMin 'sure' court won't block ESM fund

STRASBOURG, France, Sept 3 (Reuters) - German Finance Minister Wolfgang Schaeuble said on Monday he was sure the country’s Constitutional Court would not next week block treaties establishing a permanent bailout fund and strong budgetary regulations in Europe.

A negative ruling on Sept. 12 by the court in Karlsruhe on whether the ESM fund can go ahead risks plunging the 17-nation single currency zone into turmoil and fuelling panic on bond markets by raising doubt over bailouts of debt-laden southern states.

“The Constitutional Court in Germany will not block, I am sure, the treaties of the fiscal compact and the ESM,” Schaeuble told a conference at the European parliament in Strasbourg, in an unusually direct comment on the pending verdict.

“We have examined this carefully and I can’t see any, any problem with our German constitution.”

German Chancellor Angela Merkel’s government typically avoids commenting on the deliberations of the court, one of Germany’s must respected institutions.

The German finance minister, however, noted that the court had never before struck down a European treaty: “And I am sure it will not happen this time.”

Most legal experts consider it unlikely the court’s eight judges would block the treaties outright.

However, they suggest the court may demand more parliamentary consultation before Germany agrees to any further European integration, or signal that the process has gone as far as can be permitted without rewriting Germany’s basic law.

The ESM was meant to succeed the existing temporary European Financial Stability Facility (EFSF) from July, erecting a 700-billion-euro firewall to contain the euro zone debt crisis.

But Karlsruhe threw a spanner in the works by deciding in mid-July to take two months to look into complaints over the constitutionality of the ESM, as well as a European fiscal pact that gives EU institutions intrusive powers to enforce the currency area’s budget rules.

That left the fate of the new rescue fund in limbo. Without ratification by the biggest economy it cannot go into force, leaving euro zone with just 150 billion euros left in the EFSF.

The ruling comes amid the backdrop of deliberations at the European Central Bank (ECB) on the conditions under which it might intervene to cap Spanish and Italian borrowing costs - expected to be conditional on the ESM being deployed. ECB President Mario Draghi is expected to outline these this week.

The German minister said that further bold steps towards budgetary union would be needed in Europe and he said this would be best accomplished via treaty change, which would require the support of all 27-members of the European Union.

He said that France and Germany were broadly in agreement on this - despite reticence in Paris about handing too much sovereignty to Brussels. The risk, he said, was that non-euro zone member states would oppose it.

“We have to ask our British friends not to block this,” he said.

With growing popular distrust of European integration fuelled by the euro zone crisis, Schaeuble said that political reforms were needed to increase democratic accountability. He suggested a directly elected European president and second chamber of the European parliament.

He reiterated that the euro zone’s economic problems would not be resolved by the monetary policy actions of the European Central Bank. He urged troubled member states instead to press ahead with economic reforms to improve competitiveness.

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