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German Court Backs ESM, Fiscal Compact

by Ulrika Lomas, Tax-News.com, Brussels

14 September 2012


Following months of uncertainty, Germany’s Federal Constitutional Court has finally given the green light to the long-awaited permanent euro rescue mechanism, the European Stability Mechanism (ESM), and the fiscal compact, aimed at ensuring greater fiscal discipline in Europe.

The Karlsruhe Court rejected requests for injunctions opposing the law on the ESM treaty, the law on the fiscal compact, the ESM financing law, and the law amending article 136 of the Treaty on the Functioning of the European Union (TFEU).

The Court nevertheless stipulated that ratification could only be completed if it ensured under international law that Germany’s contribution to the ESM be limited to EUR190bn (USD245bn). The maximum liability can only be increased with the consent of Germany’s representative, the Court said.

The Court also ruled that representatives of both the Bundestag (lower house of parliament) and the Bundesrat (upper house) must be “comprehensively” informed of ESM activities.

Welcoming the Court’s verdict, German Finance Minister Wolfgang Schäuble underscored that the ruling is a good decision for Europe and for Germany. The Court has confirmed the government’s view that the ESM and the fiscal compact are in accordance with the country’s basic law and the ratification process can now be swiftly concluded, the minister explained, reiterating that in accordance with the treaties the upper limit for Germany’s share of the ESM is clearly set at EUR190bn.

The government will now ensure under international law, within the framework of the ratification process, that Germany’s liability is limited to the amount fixed in the ESM treaty and that parliament’s rights to information are comprehensively maintained, Schäuble added.

Emphasizing that the decision is an important milestone for the stabilization of the eurozone, Schäuble concluded his remarks by pointing out that the ESM can now be ready within a few weeks.

TAGS: Finance | tax | economics | fiscal policy | law | Germany | currency

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