Unlimited Liability: German Parties Offer Rival Interpretations of Euro Ruling

By SPIEGEL Staff

The German government is pleased with the recent decision by the country's Constitutional Court that gave the green light to ratify the permanent euro bailout fund. But the celebration may be premature. Some of the conditions set by the court could prove prickly for the government and its final ruling on the case could come with unpleasant surprises.

Too early to celebrate? Angela Merkel holds up a mug of beer at the opening of an Oktoberfest celebration in Berlin. Zoom
DPA

Too early to celebrate? Angela Merkel holds up a mug of beer at the opening of an Oktoberfest celebration in Berlin.

For some time now, the path out of the euro crisis has been a clear one for Angela Merkel. Of course, the German chancellor believes that her policies are the right way out. Last Wednesday, when the German Federal Constitutional Court approved the ratification of the treaty implementing the permanent euro bailout fund, the European Stability Mechanism (ESM), with a few conditions, the chancellor once again felt affirmed.

"Germany is sending a strong message today -- to Europe and beyond," she said, cheering the decision. The Karlsruhe-based court, she said, had "freed the path that had always guided us and me very personally."

The chancellor was relieved and all of Europe could breathe a little easier. European leaders could now continue as they have up until now in their efforts to rescue the common currency. All signs indicated that the tense situation would begin to relax. Stock markets rose and the euro also gained against the dollar. Risk premiums on Italian and Spanish government bonds also sank. Once again, the euro appeared to have been rescued. The only question: How long will the latest rescue effort last this time?

The question arises because the ruling is a preliminary one, and the court's final decision could still hold a few surprises for European leaders. The ESM can now be ratified, but some aspects remain unclear and may not be clarified until the court rules in the main proceedings in the cases against the ESM ratification and the European Central Bank's plans to purchase unlimited government bonds from crisis-plagued euro-zone countries. The justices in Karlsruhe have left plenty of wiggle room in the language used in the preliminary ruling for a final decision later.

All Parties Claim Victory

As with many court rulings, this time around all parties are claiming victory, even though the Constitutional Court denied the petition for a temporary injunction against the ESM's ratification. Merkel and her Finance Minister Wolfgang Schäuble, both of the conservative Christian Democratic Union (CDU) party, are hoping that it will enable them to continue to implement their efforts to stabilize the euro in a step-by-step manner, just as they have done up until now. But the CDU's Bavarian sister party, the Christian Social Union (CSU), where prominent party leaders have been some of the most vocal detractors of Merkel's policies for shoring up the euro, also see the ruling as an opportunity to further tie the chancellor's hands. Party leader Horst Seehofer wants to take advantage of a section of the ruling in which the justices state that German aid cannot be provided in the euro bailout program without the approval of the Bundestag, Germany's federal parliament. And if he has his way, that amount would never exceed the €190 billion ($249 billion) ceiling the court has stipulated as Germany's maximum possible liability under current provisions.

But ever since ECB chief Mario Draghi announced that under certain circumstances the central bank would be ready to make unlimited purchases of Italian or Spanish sovereign bonds, the Bavarian governor has harbored concerns that Germany may also be on the verge of assuming unlimited liabilities. During a telephone call last Monday, Seehofer asked Merkel if the ECB's new policy meant that a country that applied for assistance with the permanent rescue fund could secure unlimited aid. Merkel confirmed Seehofer's concerns.

The CSU party boss is now seeking to position the Constitutional Court in Karlsruhe against the ECB. "In my opinion, the €190 billion that the Federal Constitutional Court has named as the ceiling for the entire German contribution for the euro bailout also includes the sum that Germany, because of its 27 percent share in the ECB, must carry responsibility for during bond purchases. The €190 billion stands -- for the ECB, too," he said.

'Those Who Think More and More Can Be Given ... Are Fooling Themselves'

Bavarian Finance Minister Markus Söder, long an outspoken critic of the federal government's euro policies, would like to see the Bundestag placed under supervision, providing Germany's central bank, the Bundesbank, with the ability to express its concerns about German aid programs. The Bundesbank, he says, could "oversee how Germany abides by its upper ceiling on liability," Söder said in a SPIEGEL interview.

At a meeting of his party later this week, CSU party chief Seehofer would like to push his party to adopt this line officially. "Those who think after the Constitutional Court's ruling that more and more can be given in the euro-rescue efforts are fooling themselves," he rants. "We can't demand domestic reforms from Germans like increasing the age of retirement to 67 and expect them to accept pay freezes and then assume unlimited debt for other countries."

It is the ECB's decision to purchase unlimited bonds from debt-ridden euro-zone nations that Seehofer is targeting the most with his criticism. "With this decision, the ECB has entered into the political arena, and now it is also going to have ensure that it has political support," he said. In the Eurotower in Frankfurt, where the ECB has its headquarters, officials are looking south towards Bavaria with concern. ECB chief Draghi even requested that his staff ask Seehofer if he was interested in meeting with the central banker.

Budget Havoc?

The ruling in Karlsruhe may also create difficulties for Schäuble, a leader in efforts to save the euro, in his position as finance minister because the final decision by the court could wreak havoc on his budget. At issue is whether and how the federal government is to account for the German guarantee sums provided for in the ESM. According to the current provisions, Germany must pay €22 billion in cash into the permanent bailout fund. In addition, the Finance Ministry is permitted to provide guarantees of around €168 billion. However, this sum does not appear as a line item in the federal budget.

Things could get highly delicate given that the court's justices have ruled that the Bundestag is obliged to "ensure to the extent necessary" that it will be "possible at any time to completely pay" the €168 billion in a "timely manner." The reason for that ruling is a provision in the ESM treaty under which Germany's voting rights could be suspended for any period in which it violated its payment obligations. The deadline in which up to three-digit billions would have to be paid is just seven days.

The court has demanded repeatedly that it must be ensured "under all circumstances that the context of legitimation between parliament and the European Stability Mechanism is not interrupted." This could imply that the federal government must make this €168 billion available and that it would have to be included in the budget as a so-called commitment appropriation. As a result, the government's entire budget planning could be thrown off track.

Euro Zone States to Agree to Liability Cap

What has already been clarified, however, is how the government will deal with the demand from the Karlsruhe court that the upper ceiling for German liability at the ESM be capped at €190 billion and that this requirement be made binding under international law. During a meeting on Friday of the 17 euro-zone finance ministers in the Cypriot capital Nicosia, Schäuble encountered a surprising amount of goodwill. One of his deputy ministers barely had a chance to explain what the justices were demanding when Austrian Finance Minister Maria Fekter piped in: "We also want a statement like that." The Dutch finance minister also joined in.

By the end of the meeting, the finance ministers said that they would agree on a statement by the beginning of October addressing the German Federal Constitutional Court's concerns as well as the rights of other countries. "There will be a general declaration that applies to all the euro countries," said Fekter. Then, on Oct. 8, the ESM can go into operation.

At that time, it will also be possible to make a bailout program available for Spain. Madrid's application at the ESM for aid would also be the prerequisite for the ECB to purchase the beleaguered country's sovereign bonds on the markets. There could be a few hitches here, too, however. Spanish Prime Minister Mariano Rajoy would love to receive aid from ECB chief Draghi, but he also doesn't want to submit to the usual conditions imposed in an ESM bailout program -- including monitoring by the troika, comprised of representatives of the European Commission, the ECB and the International Monetary Fund.

In Berlin, however, many members of parliament within the parties that are part of Merkel's coalition government want to insist on precisely those conditions for aid. "We can only agree to applications for ESM bailouts if there is a fully valid reform program that is controlled by the troika," says Michael Fuchs, the deputy whip of the joint party group for the CDU and the CSU in parliament. That, Fuchs said, was the mandate the Constitutional Court had issued to members of parliament.

Right after Wednesday's ruling, Merkel and Schäuble, who are also both members of parliament with the conservatives, warned against agreeing to any bailout packages in Brussels that included watered-down conditions. They said it would not be possible to get backing from the German parliament for any such packages.

With some members of parliament threatening to rebel, an open dispute between the chancellor's CDU and its CSU sister party, and new risks for the federal budget, it is clear the those seeking to save the euro still have to clear a few hurdles ahead of them despite the Constitutional Court ruling.

REPORTED BY DIETMAR HIPP, PETER MÜLLER, CHRISTOPH PAULY, CHRISTIAN REIERMANN

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1. It had never been expected
BTraven 09/18/2012
The devil is in the details. What a great surprise.
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