German Finance Minister Wolfgang Schäuble ultimately had to concede defeat. Last Friday, Schäuble, a member of Chancellor Angela Merkel's conservative Christian Democratic Union (CDU), voted in favor of the massive euro-zone bailout packages whose sheer size makes most people's heads spin. "The euro area is mobilizing an overall firewall of approximately €800 billion, more than $1 trillion," the Euro Group, which consists of the euro-zone finance ministers, proudly announced.
There was a palpable sense of relief among all those attending the meeting of European Union finance ministers at Copenhagen's Bella Center. After all, they had resolved a protracted dispute. For months, the Germans had resisted the high firewalls that have been urged by the European Commission, the European Central Bank (ECB) and the International Monetary Fund (IMF).
Now, Berlin has relented -- but this breakthrough could soon be reversed by further setbacks. There's a good chance that the beefed-up bailout fund won't work, despite its billions of euros in firepower.
This time the problem won't be the German government but rather the German parliament, the Bundestag. Since the Bundestag insists on having a say on every minute detail involving the rescue fund, it's making life more difficult for the would-be euro rescuers. A number of instruments that the euro-zone governments only agreed to after fierce wrangling will thus probably remain permanently toothless, and possibly never be implemented.
Until now, the Bundestag has enjoyed co-determination rights that exceed virtually every other national parliament in Europe. Representatives of all political parties decided last week that these rights should now be extended. In the future, the Bundestag will have to give its approval to nearly all measures taken within the scope of the temporary euro-zone rescue fund, the European Financial Stability Facility (EFSF).
That is, of course, how things should work in a properly functioning democracy. But the situation also requires viable procedures and effective decision-making bodies -- and this is precisely where the problem lies. Veteran parliamentarians have warned that the new rules will be extremely difficult to implement, and the ECB too is alarmed. Central bank representatives have informed the German government that the reform threatens the effectiveness of the bailout packages and shifts the onus right back to the body that was actually supposed to be relieved of this burden: the ECB's governing council.
Indeed, the parliamentarians had originally organized the monitoring of the new fund largely in line with the monetary watchdog's needs. Regardless of whether the temporary rescue fund was to aid debt-stricken countries by purchasing sovereign bonds directly from governments on the so-called primary market, or on the stock exchanges (the secondary market), the decisions were to be largely monitored by a secret committee elected by the parliamentarians. That, at least, was what the Bundestag decided last September. The parliamentarians hoped that this would prevent the euro rescuers' plans from being prematurely disclosed and effectively nullified by speculators on the financial markets.
Getting the Whole Parliament Involved
But the idea of entrusting a significant proportion of the bailout decisions to a confidential group of experts contravened the rulings of Germany's Constitutional Court. In a number of earlier decisions, the court had made reference to the special "comprehensive budgetary responsibility of the Bundestag." This led to an inevitable development: In February, the court in Karlsruhe flatly rejected the parliamentarians' proposal. After in-depth hearings with a wide range of experts, the judges said that, aside from secondary market purchases, they saw no reason why decision-making powers should be limited to a secret small committee. The court expressly indicated that the parliamentary budgetary committee was far better suited as a representative of the Bundestag.
Vastly encouraged by the "comprehensive budgetary responsibility" that the court attributed to the Bundestag, the parliamentarians flouted the judges' advice and united across party lines to hammer out a new decision-making process that exceeds all sense of proportion. Instead of relying on the 41-member budgetary committee with its knowledgeable experts from all parties, it was decided that all 620 members of the Bundestag would directly decide on nearly every detail of the euro rescue fund. Only particularly sensitive purchases on the secondary market will be reserved for a special committee.
It was the left-leaning Social Democratic Party (SPD) and the Greens that spearheaded demands for maximum parliamentary participation, but for tactical reasons, Merkel's center-right coalition of the CDU, its Bavarian sister party, the Christian Social Union (CSU), and the pro-business Free Democratic Party (FDP) rapidly fell into line with the opposition. The government wanted to give the opposition something so that, in return, the SPD and Greens would support the European fiscal pact in the upcoming Bundestag vote. Merkel's administration is reliant on opposition help to get the fiscal pact through the Bundestag, as it has to be passed with a two-thirds majority.
The conservatives' floor leader Volker Kauder also basically agrees with the SPD's position. He, too, strongly favors a self-confident parliament. Furthermore, the government and the opposition have established a tradition of collectively deciding on important issues connected with saving the euro.
Sense of Unease
But the initial broad-based approval has been replaced by a growing sense of unease, particularly among the budgetary experts in Merkel's governing coalition. They also support the widest possible parliamentary participation, but they say that what has now been decided is hardly feasible. If the EFSF wants to make important decisions, in the future the entire Bundestag will have to regularly convene, in compliance with all legislative deadlines and regulations. For instance, at least 311 parliamentarians must be present in order for a decision to be valid.
"If we make the co-determination rights too complex, then ultimately only the ECB will be effective," argues Norbert Barthle, the CDU's budgetary policy spokesman in the Bundestag. "And then there will be no parliamentary control whatsoever."
Otto Fricke, Barthle's counterpart from the FDP, is also concerned: "I see a danger that we may be doing ourselves a disservice with our complicated construction of parliamentary participation in the EFSF." He says that if nearly all the fund's actions have to be debated in the parliament's full assembly, then the rescue fund will lose its effectiveness, especially when action is urgently needed.
One crucial problem with the new decision is that it also sets a precedent for the EFSF's successor, the European Stability Mechanism (ESM), which is due to come into operation in mid-2012. Last Thursday, Bundestag President Norbert Lammert wrote a memo on this topic confirming critics' worst fears. Lammert also wants to grant the Bundestag wide-ranging rights for the ESM. This would threaten the fund's effectiveness. The ESM was initially designed so that it could act quickly. All important decisions are made by a powerful governing council made up of members of the governments of the euro-zone states. If, however, the German representative constantly has to wait for the express approval of the entire Bundestag, the decision-making body would hardly function.
Following the German Example
To make matters worse, the ESM could be completely paralyzed if the German democratic approach becomes a precedent for other countries in the euro zone. Until now, it has mainly only been the Finnish parliament that has enjoyed co-determination rights similar to those of the Bundestag's.
But additional countries -- such as France -- could pattern themselves after the Germans. It seems to be only a matter of time before most national parliaments have a say in every step of the euro rescue.
"Of course it won't be easy if even more parliaments vote (on these issues)," says CDU Bundestag member Antje Tillmann. "But as German parliamentarians we can't assert rights that we don't grant to others."
The ECB is perhaps more disappointed than anyone with this development. It was hoping that the expanded firewall would take over the role of buying up sovereign bonds from crisis-hit countries. "It's important that the EFSF and ESM can intervene in crises by purchasing sovereign bonds on the primary and secondary markets," argues Jörg Asmussen, a member of the ECB executive board. He says this is the only way that the rescue funds can ease the burden on the central bank.
But now ECB sources say that the scope of action of the EFSF and the ESM has been drastically curtailed. They point out that both rescue funds will make hardly any interventions on the primary market in the future if the Bundestag as a whole has to decide whether German taxpayers' money should be used to help debt-ridden countries.
Need for a European Solution
Indeed, a far more basic lesson can be learned from the difficulties faced by Europe's rescue funds: Over the long term, a European problem cannot be resolved with national parliaments. "We need a rescue fund that is financed with European resources and democratically legitimized at this level," says Green Party financial expert Gerhard Schick.
Someday in the distant future, budgetary experts at the European Parliament, or a new body representing the euro-zone countries, will most likely decide on these issues.
REPORTED BY SVEN BÖLL, THOMAS DARNSTÄDT, PETER MÜLLER AND CHRISTIAN REIERMANN