Germany's Constitutional Court gave a green light for the country to ratify the Euro zone's new bailout fund and budget pact, but insisted the German parliament have veto powers over any future increases in the size of the fund.
The eagerly awaited verdict boosted global stocks and the Euro currency as investors breathed a sigh of relief that the Euro zone's rescue fund for nations in crisis could soon take effect after months of delay.
Germany is the only country in the 17-nation Euro zone that has yet to ratify the European Stability Mechanism (ESM), which is meant to erect a 700 billion-Euro firewall against the spread of the three-year-old sovereign debt crisis.
This is a good day for Germany and a good day for Europe, German Chancellor Angela Merkel said in a speech to parliament.
Rejecting injunction requests from 37.000 plaintiffs seeking to block the ESM and a separate pact on new budget rules, the court set two main conditions for the treaties to go ahead.
It said German liability in the rescue fund must be limited to 190 billion Euros, the share set out in the current ESM treaty, and that any increase in that amount would require prior approval by the Bundestag lower house of parliament.
The court also ruled that a clause in the ESM treaty which seeks to keep decisions of the fund confidential ”must not stand in the way of the comprehensive information of the Bundestag and of the Bundesrat (upper house), meaning both chambers would have the right to be consulted on the ESM activities.
These reservations must be attached to German ratification of the ESM, meaning the government may have to add a protocol to the rescue fund treaty.
President Joachim Gauck is expected to wait until this protocol is in place, and agreed with Germany's European partners, before signing off on the ESM. Experts said this could take several weeks.
Fundamentally, the Constitutional Court has said that the ESM treaty can be ratified, said Kyrill-Alexander Schwarz, a constitutional expert at Wuerzburg University
But the government must take steps to adopt the conditions set out in the verdict. President Gauck will probably not sign until a protocol is in place. He could do this first, but out of respect for the other ESM partners, he is likely to wait.”
Jean-Claude Juncker, who heads the group of Euro zone finance ministers, said the board of governors of the ESM would meet for the first time on October 8, a sign of optimism that the fund will be operational next month.