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Germany’s top court will take more than eight weeks to decide whether to suspend the euro-area’s permanent bailout fund, leaving Europe’s anti-crisis coffer less than half full to respond to the debt crisis.
The Federal Constitutional Court in Karlsruhe will issue a ruling on bids to halt Germany’s participation in the European Stability Mechanism and the fiscal pact on Sept. 12, it said today in an e-mailed statement. That’s more than two months after it held a hearing on the measures.
“The court has held a comprehensive hearing on the issue and will now take the time it needs to reach a decision,” German government spokesman Steffen Seibert told reporters in Berlin today. Finance Minister Wolfgang Schaeuble warned the hearing last week that a delay in activating the ESM “could lead to a significant worsening” of the crisis.
The delay could complicate efforts to resolve the 2 1/2- year-old crisis as European leaders squabble over the details of bailout conditions, bank rescues and burden sharing. In an interview yesterday, Chancellor Angela Merkel gave no ground on German demands for more centralized control over euro member states in return for joint liabilities.
Chiding states which sought to slow moves toward more central control, Merkel told broadcaster ZDF that a so-called banking union involving a bloc-wide financial overseer will have to include joint oversight on a “new level.” She said efforts to advance on “solidarity” without supervision will fail.
“All of these attempts will have no chance with me or with Germany,” Merkel said in the interview in Berlin.
Delaying the start of the permanent bailout fund until mid- September or later means crisis managers will have to get by with the 240 billion euros ($293 billion) left in the temporary European Financial Stability Facility. The ESM will eventually have 500 billion euros in firepower.
The high court signaled last week that its decision on whether lawsuits to stop the euro-crisis legislation have sufficient merit could take months instead of weeks. Should the court issue an injunction on Sept. 12, the laws would be held up until it issues a final verdict.
The court took the step of asking German President Joachim Gauck not to sign the legislation on June 21, which scrapped initial plans to set up the ESM this month.
While court President Andreas Vosskuhle said that judges “must respect” the fact that both houses of parliament approved the laws on June 29 with a two-thirds majority, arriving at a decision “is not easy in many respects.”
The complaints targeting the ESM and fiscal pact were brought by a group of lawmakers, academics and political groups filing separate suits seeking an injunction. They argued that the legislation designed to overcome the three-year-old debt crisis transfers constitutionally mandated authority from German lawmakers to Brussels and undermines democratic rule.
Vosskuhle at one point in the hearing last week asked Rolf Strauch, a board member for the EFSF, what the effects would be if the court took longer to decide.
“I think a time frame of two or three months, or even longer, would be quite risky,” Strauch said.
The euro fell to its lowest level against the dollar in more than two years last week, sliding as far as $1.2163 on July 13. The currency was down 0.5 percent to $1.2190 at 1:22 p.m. in Frankfurt, while the Stoxx Europe 600 Index (SXXP) dropped 0.1 percent.
Europe’s most credit-worthy government bonds climbed last week, with German two-year note yields down to a record minus 0.052 percent, as investors sought havens from the euro crisis.
German lawmakers will interrupt their summer vacations and return to Berlin on July 19 to vote to approve 100 billion euros in rescue loans to Spain. After Spanish Prime Minister Mariano Rajoy last week announced 65 billion euros in welfare cuts and tax increases, Merkel reiterated yesterday that financial assistance would not be doled out without conditions.
“Whoever receives assistance and where liabilities are taken over, there has to be control,” Merkel told ZDF.
French President Francois Hollande, Italian Prime Minister Mario Monti and Rajoy have pressed for faster action, including joint liabilities, while Merkel has called jointly issued debt the “wrong way” to fix the crisis. Merkel last month castigated a blueprint for the summit by EU President Herman Van Rompuy as too focused on “collectivization.”
German Bundesbank President Jens Weidmann said euro leaders had caused damage by failing to define more clearly their conclusions at the summit. He told Dutch newspaper Het Financieele Dagblad on July 14 that euro nations “should discuss giving up sovereignty with the same openness as the question of how to resolve the debt problem collectively.”
As governments in Spain and Italy struggle under the burden of higher borrowing costs, Weidmann, Germany’s chief central banker and a European Central Bank Governing Council member, told Boersen-Zeitung that Italy’s higher yields don’t justify a request for bailout assistance. Euro bailout funding should be deployed only as a last resort, he said.
“If Italy stays the course on reforms, it’s on a good path,” Weidmann told the newspaper in an interview. Asked whether the euro area’s third-largest economy needs to tap the fund, he said, “No, I don’t see Italy in that situation.”
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