Fate of euro pact in judges' hands

By Kate Connolly

German Chancellor Angela Merkel (right) and German Economy Minister Philipp Roesler. Photo / AP
German Chancellor Angela Merkel (right) and German Economy Minister Philipp Roesler. Photo / AP

They have the potential to throw the stock exchange into turmoil, trigger frenzy on bond markets and bring down the German Government.

So the eyes and ears of the eurozone will be on the eight red-robed judges of Germany's highest court this week when they deliver a long-awaited verdict on whether a financial rescue fund considered crucial to the future of the euro gets the green light.

The Constitutional Court is under international pressure to rule in favour of the European stability mechanism and fiscal pact. A dissenting ruling from the court, based in Karlsruhe, southwestern Germany, would probably cause havoc on money markets and cast doubt on the future of Europe's single currency.

"The German Constitutional Court cannot afford to be seen as not being independent, but it also cannot afford to be seen as the court that brought down the Government," said Constanze Stelzenmuller, a senior transatlantic fellow at the German Marshall Fund in Berlin.

"They're going to have to try to square the circle: in other words, not bring down the Government at the same time as asserting their independence."

The ruling, due on Wednesday night or Thursday NZ time, is expected to give the go-ahead to the ESM, a permanent bailout mechanism, and the fiscal pact, but with caveats such as constraints on future decision-making or a ruling that Germany's basic law has to be rewritten if there is to be further EU integration.

A Government insider told the Observer that the court "is very independent and always good for a surprise. Nobody knows what will happen."

A weekend poll on Spiegel Online showed 54 per cent of Germans want the court to block the legislation, reflecting the degree to which public opposition to bailouts is increasing.

The poll was released a day after the European Central Bank president, Mario Draghi, divulged plans for making unlimited bond purchases to lower borrowing costs for crisis countries in the eurozone.

The announcement unleashed a wave of condemnation across much of Germany's media and among a growing band of eurosceptics who said the scheme would stoke inflation.

German fears of a repeat of its 20th-century experiences of hyperinflation and the catastrophic consequences run deep.

"A black day for the euro, and for all of us!" a headline in the tabloid Bild said last week. It said the ECB had effectively written a blank cheque to indebted states by offering to buy their bonds.

Jens Weidmann, head of the Bundesbank, issued a statement calling the Draghi decision "tantamount to financing governments by printing banknotes" and accusing the Italian banker of breaking ECB rules.

Analysts noted that the once mighty Bundesbank had been sidelined.

"Germans feel utterly deserted and mocked by the fact that their Bundesbank has been so completely isolated, as has Germany," said Gunnar Beck, a specialist in EU law at London's School of Oriental and African Studies.

"While this looks like an attractive solution in the short term, in the long term it's disastrous, as it takes away any incentive for reform from the countries in crisis."

- Observer

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