Cause and Effect in European Politics and Law

German Constitutional Court Backed the Eurozone Rescue Operations

Ralitsa Kovacheva, September 8, 2011

The German Constitutional Court ruled that the rescue operations in the euro area did not violate the budgetary powers of the Bundestag. In the future, however, the government has to seek a prior approval of the parliamentary budget committee before deciding on the participation of Germany, the judges in Karlsruhe ruled.

In the past year, urgent financial aid to Greece, Ireland and Portugal has been granted. For this purpose the eurozone rescue fund (EFSF) has been created, in which member states participate with cash instalments and guarantees, proportional to their capital in the European Central Bank. Logically, Germany is the largest donor in the rescue loans.

The Federal Constitutional Court's decision came at a crucial moment for the German government - in late September the Bundestag is to vote on increasing the powers of the rescue fund, as agreed by the eurozone leaders on 21 July. This will increase the size of the German financial guarantees for the EFSF from 123 billion euros to 211 billion euros, The Financial Times wrote. According to the newspaper, the vote on the second Greek programme is unlikely to happen before October, and the ratification of the European Stability Mechanism (the permanent rescue fund for the euro area) will be postponed until December.

In a speech to the Bundestag on 7 September, German Chancellor Angela Merkel sent a few key messages. Perhaps the most important of them was about changes in the EU Treaty: “In the Lisbon treaty there is no mechanism to force those who can't or don't want to respect the stability pact to do so. Therefore, if we say to ourselves that we need more Europe, a stronger, better Europe in the future, then changes to the treaty should not be taboo, to ensure the rules are binding.” Recently, German Finance Minister Wolfgang Schäuble also spoke about the need for treaty changes to ensure a centralised governance of the eurozone.

Meanwhile, the Slovak Government approved the extension of the rescue fund. The cabinet, however, lacks a parliamentary majority to push the decision through. Slovakia has refused to participate in the financial packages for Greece, Ireland and Portugal and vowed to vote on rescue fund changes only after all other member states had approved them.

A month ago, Slovak Parliament Speaker Richard Sulik (leader of the Freedom and Solidarity party, the second largest partner in the ruling centre-right coalition) openly opposed to the decisions of the euro leaders from July 21. According to him, taking on the debts of troubled countries would make the EU a “debt union”. Sulik described it as “a straight road to complete socialism,” comparing the European Union with the Soviet Union.

Problems in this regard are also expected in Finland which, besides being against the changes in the rescue fund, has put the agreement for the second Greek loan on trial, insisting on collateral for its participation. Such an option exists in the decisions of the euro leaders from 21 July: “Where appropriate, a collateral arrangement will be put in place so as to cover the risk arising to euro area Member States from their guarantees to the EFSF." From the singular from of “agreement” and the entire context of the decisions we can judge that it is rather about an agreement between the EFSF (the entire eurozone) and the recipient of aid, than about negotiating collaterals bilaterally with individual member states.

With its request Helsinki opened the Pandora's box for the second time, because other countries also demanded collaterals for their guarantees for the Greek loan. There have been hectic but so far unproductive talks going on the issue for a few weeks. On Monday, the president of the European Council, Herman Van Rompuy visited Helsinki and met with Prime Minister Jyrki Katainen. Details of the talks were not revealed, but President Van Rompuy expressed confidence that a compromise would be reached soon. "Soon" means until the meeting of the eurozone finance ministers on 16 September.