Germany clears last hurdle to ESM bailout fund ratification

Merkel happy.jpg

Germany cleared the last legal hurdle to ratifying the euro zone's new bailout fund on Wednesday (26 September) with a cabinet declaration that addresses concerns raised by the country's Constitutional Court. The German parliament will have veto rights over any increase in Berlin's contribution, which is now capped at €190 billion.

Germany is the last country in the 17-member eurozone to complete ratification of the European Stability Mechanism (ESM), an important tool to stem the three-year debt crisis that has forced bailouts of Greece, Ireland and Portugal and now threatens big countries like Spain and Italy.

German ratification was held up for months by legal complaints against the ESM.

The Constitutional Court finally gave the bailout fund the green light on 12 September but said the government must also meet certain conditions.

In line with that ruling, the declaration approved by Chancellor Angela Merkel's centre-right cabinet stated that the German parliament would have veto rights over any increase in Berlin's contribution to the €700 billion ESM.

Germany's contribution is now capped at €190 billion. "The declaration corresponds to the guidelines set out by the Constitutional Court," Merkel's spokesman Steffen Seibert told a regular news briefing.

The lower house of parliament, the Bundestag, and the upper house Bundesrat already approved the ESM in June by large majorities.

President Joachim Gauck signed the ESM legislation on 13 Septebmer, a day after the Constitutional Court ruling, but said formal ratification would only be complete when the government had met the court's conditions.

Seibert said the ESM should come into force on 8 October when the new fund's directors hold their first meeting. They will is expected to be up and running by the end of October.

The head of the Eurogroup of finance ministers, Jean-Claude Juncker, has said member states will pay €32 billion into the ESM in two tranches next month, effectively giving it an initial lending capacity of roughly €200 billion.

German Federal Government:

German public opinion has been broadly hostile to bailing out troubled eurozone countries and opposed to raising the firepower of the bloc's permanent rescue fund, the European Stability Mechanism (ESM).

Germany is the biggest contributor to the ESM, which is funded by taxpayers' money.

In exchange for Germany's solidarity with troubled eurozone member states, German Chancellor Angela Merkel has insisted on a new European treaty to  tighten fiscal discipline in the eurozone and deepen economic integration as a way to address the bloc's sovereign debt crisis.

  • 8 Oct.: ESM should come into force when the new fund's directors hold their first meeting.

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