German supreme court reasserts parliament's primacy over bailouts

ANALYSIS:YES TO evolution, no to revolution: that was the tenor of the response to euro zone bailouts from Germany's highest court in Karlsruhe.

In an era of emergency summits and closed-door Brussels bailouts, Germany’s eight red- robed constitutional judges were anxious yesterday to reassert the primacy of national parliaments over euro zone bailouts.

To no one’s great surprise, the judges sided with the government in dismissing on almost all points three constitutional challenges to last year’s Greek and European Financial Stability Facility (EFSF) bailouts.

Yes, the German parliament must have a say on every individual German payout into future euro zone bailout structures. But, conscious of the tension between market efficacy and democratic legitimacy, future payments need only the approval of the Bundestag’s budgetary committee and not the entire parliament.

“This should not be interpreted mistakenly as a constitutional blank cheque authorising further rescue measures,” said Andreas Vosskuhle, president of the court’s second chamber, calling for “adequate parliamentary influence” over how these payouts are spent in recipient countries.

As German legal minds dissected the verdict’s finer consequences, in particular the fate of eurobonds, a jubilant German government welcomed a verdict one official described as an “important precedent, 100 per cent in our favour”.

Yesterday’s ruling has two immediate effects. First, it casts off the legal shadow hanging over last year’s limited bailout measures. Second, it kicks back to Bundestag MPs the responsibility for assessing risks associated with a future, permanent euro zone bailout system.

After widespread criticism of its 2008 Lisbon treaty ruling, there was widespread agreement that a chastened Karlsruhe demonstrated considerable caution yesterday.

“The verdict is even more restrained than many had expected,” said Karlsruhe analyst Prof Uwe Kranenpohl. “It formalises the participation of parliamentarians in bailouts, but only in a way the government had already anticipated and had begun to discuss for the reformed EFSF.”

The Karlsruhe judges insisted they were not empowered to question the economics of bailouts, parliamentary decisions or European law. But the court invoked its right, established under its 1993 Maastricht treaty ruling, to examine concerns that European legislation, if implemented, could “hollow out” Bundestag competences.

In their seven-to-one ruling the judges admitted there was “considerable tension” in balancing national budgetary responsibility against agreements, through bailouts, to prop up the solvency of other countries and thus the euro zone.

However, the court said even the complainants’ worst-case scenarios did not present a compelling case for how last year’s bailouts, limited in size and duration, undermined the Bundestag’s budgetary competence. It argued that elected politicians are entitled to a “certain leeway” in appraising the knock-on effect of bailout payments on the “viability” of future national budgets.

Passing the baton of responsibility back to MPs, it reminded parliament that it is not permitted to “transfer to other actors its budget responsibility through unspecified budgetary empowerment measures”.

In other words: German MPs are not allowed co-sign blank bailout cheques, nor should Berlin try to issue any.

“If the Bundestag enabled blanket guarantees of considerable size for . . . other member states, this could lead to irreversible and, in some circumstances, massive limitations on national political policy,” the court ruled.

“Thus no permanent structure based on international treaty can be created that is based on accepting liability for the decisions of other states, particularly when they are linked to an incalculable risk.”

What at first glance looks like a stop sign to the permanent European Stability Mechanism (ESM) bailout structure is, government analysts insisted yesterday, merely a bump in the road. Treaty change to accompany ESM legislation later this year will, they say, create a constitutional basis in Germany for the permanent, post-2013 bailout structure.

Yesterday’s ruling was a look in the rear-view mirror at last year’s bailouts, but it assists the German government down the road, too. Ahead of a September 29th parliamentary vote on EFSF reform, chancellor Angela Merkel has proof from Karlsruhe that previous bailout laws did not strip the Bundestag of its budgetary rights.

The German leader now has three weeks to convince her MPs that the beefed-up EFSF – with powers to intervene in markets – will fall under similar parliamentary control.

“At present there is no cause to presume an irreversible process has begun with negative consequences for the budgetary autonomy of the Bundestag,” the court ruled.

Ahead of the vote, Karlsruhe has given Berlin some homework: to tighten up existing parliamentary controls for bailouts, by which the government merely “endeavours” to achieve agreement with the Bundestag.

“With these regulations the continued influence of the Bundestag on guarantees decisions . . . is not secured,” the judges ruled. “Thus to prevent unconstitutionality . . . the government . . . is obliged to gain the prior approval of the budgetary committee” before agreeing to further bailout loans and guarantees.

Six decades after its foundation, Karlsruhe gave another “yes, but” ruling on Europe, this time with the emphasis on the “yes”.