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| In Victory for Merkel, German Court Ruling Favors European Bailout Fund | In Victory for Merkel, German Court Ruling Favors European Bailout Fund |
| (about 3 hours later) | |
| KARLSRUHE, Germany — The Federal Constitutional Court in Germany gave Chancellor Angela Merkel a significant victory on Wednesday in her bid to master the debt crisis that has buffeted the Continent for years and endangered its common currency, granting approval to one of the main pillars of her strategy. | KARLSRUHE, Germany — The Federal Constitutional Court in Germany gave Chancellor Angela Merkel a significant victory on Wednesday in her bid to master the debt crisis that has buffeted the Continent for years and endangered its common currency, granting approval to one of the main pillars of her strategy. |
| With the ruling, the 17 European Union countries that use the euro will be able to move ahead with the establishment of the European Stability Mechanism, something like a Continental version of the International Monetary Fund. The mechanism will handle bailouts and work in tandem with the European Central Bank to buy the bonds of countries like Italy and Spain that are straining under high interest rates. | With the ruling, the 17 European Union countries that use the euro will be able to move ahead with the establishment of the European Stability Mechanism, something like a Continental version of the International Monetary Fund. The mechanism will handle bailouts and work in tandem with the European Central Bank to buy the bonds of countries like Italy and Spain that are straining under high interest rates. |
| The court ruled that Germany could proceed with its contribution to the mechanism, but it set certain conditions, including a requirement for parliamentary approval of any increase in the agreed-upon German contribution of 190 billion euros, or about $240 billion. | The court ruled that Germany could proceed with its contribution to the mechanism, but it set certain conditions, including a requirement for parliamentary approval of any increase in the agreed-upon German contribution of 190 billion euros, or about $240 billion. |
| The fund, with $644 billion, is intended to buoy struggling countries and help protect the common currency, an impossible mission without Germany, which has the European Union’s largest economy. Although the ruling is unlikely to still Europe’s economic crisis entirely, a rejection could have unleashed new waves of instability and thrown the fitful march toward European integration into question. | |
| “Once again, Germany today sends a strong signal out to Europe and the world beyond,” Ms. Merkel told Parliament. “Germany is decisively true to its responsibility in Europe as the largest economy and a reliable partner.” | “Once again, Germany today sends a strong signal out to Europe and the world beyond,” Ms. Merkel told Parliament. “Germany is decisively true to its responsibility in Europe as the largest economy and a reliable partner.” |
| For Ms. Merkel, rejection by the court would have been a severe political blow. Her coalition has been weak and fragmented at home. Her leadership in Europe has helped her clamber above the domestic political fray, even if many are leery of the growing financial commitments. | |
| The court ruling cheered investors, with the Stoxx 50 index of euro zone stocks rising 1.1 percent in morning trading to its highest point since March. The euro rose to nearly $1.29, its highest since May. On Wall Street, the major market indexes were up at the close of the trading day. | |
| Guido Westerwelle, Germany’s foreign minister, praised the ruling as an “intelligent decision in the pro-European spirit of our Constitution,” and Germany’s European partners expressed relief. Mario Monti, the prime minister of Italy, called the ruling “excellent news that removes the last obstacle for the adoption of the European Stability Mechanism, as well as the fiscal compact.” | Guido Westerwelle, Germany’s foreign minister, praised the ruling as an “intelligent decision in the pro-European spirit of our Constitution,” and Germany’s European partners expressed relief. Mario Monti, the prime minister of Italy, called the ruling “excellent news that removes the last obstacle for the adoption of the European Stability Mechanism, as well as the fiscal compact.” |
| Jean-Claude Juncker, president of the Eurogroup of euro zone finance ministers, said he would call the first meeting of the mechanism’s board on Oct. 8, the German news agency dpa reported. | Jean-Claude Juncker, president of the Eurogroup of euro zone finance ministers, said he would call the first meeting of the mechanism’s board on Oct. 8, the German news agency dpa reported. |
| But some experts saw the ruling as a step toward the common sharing of debt among members of the euro zone — a step that Ms. Merkel has firmly rejected but that her critics suspect she now quietly approves. | But some experts saw the ruling as a step toward the common sharing of debt among members of the euro zone — a step that Ms. Merkel has firmly rejected but that her critics suspect she now quietly approves. |
| “This may stabilize the currency union, but it will change its character,” said Jörg Krämer, chief economist at Commerzbank, contending that the mechanism, combined with the European Central Bank’s bond buying, would lead to looser monetary policy, a weaker euro and inflation in the core countries. “This will be the starting point of what I call the union of mutualized debt.” | “This may stabilize the currency union, but it will change its character,” said Jörg Krämer, chief economist at Commerzbank, contending that the mechanism, combined with the European Central Bank’s bond buying, would lead to looser monetary policy, a weaker euro and inflation in the core countries. “This will be the starting point of what I call the union of mutualized debt.” |
| In explaining the decision, Andreas Vosskuhle, the court’s president, said, “No one can say with certainty which measures will be best for the Federal Republic of Germany and the future of our united Europe in the current crisis.” For that reason, German lawmakers, as elected representatives of the people, should decide, he said. Parliament ratified the establishment of the fund in June. | |
| The court was not formally ruling on the constitutionality of the mechanism, but on requests to block the German president, Joachim Gauck, from signing the bill into law. Mr. Gauck’s office said Wednesday that he wanted to sign it as quickly as possible, but no date was set. | The court was not formally ruling on the constitutionality of the mechanism, but on requests to block the German president, Joachim Gauck, from signing the bill into law. Mr. Gauck’s office said Wednesday that he wanted to sign it as quickly as possible, but no date was set. |
| The question before the court was whether the new fund would weaken the German Parliament’s right to control the spending of taxpayers’ money. Dissenting lawmakers, academics and 37,000 citizens had signed a complaint asking the court to issue a temporary injunction against Germany’s paying into the fund. | The question before the court was whether the new fund would weaken the German Parliament’s right to control the spending of taxpayers’ money. Dissenting lawmakers, academics and 37,000 citizens had signed a complaint asking the court to issue a temporary injunction against Germany’s paying into the fund. |
| Opposition to the mechanism brought together the right, which wants to guard German sovereignty and the rights of the national Parliament, with the far left, which opposes the bailouts. | Opposition to the mechanism brought together the right, which wants to guard German sovereignty and the rights of the national Parliament, with the far left, which opposes the bailouts. |
| A temporary bailout fund for fellow euro zone members has already promised much of its available money to Greece, Ireland and Portugal, as well as to the planned recapitalization of Spain’s banking sector. Buying Spanish bonds would quickly exhaust its reserves, let alone trying to help Italy with the cost of financing its enormous debt. | A temporary bailout fund for fellow euro zone members has already promised much of its available money to Greece, Ireland and Portugal, as well as to the planned recapitalization of Spain’s banking sector. Buying Spanish bonds would quickly exhaust its reserves, let alone trying to help Italy with the cost of financing its enormous debt. |
| With the court’s support for the permanent bailout fund, Europe is moving beyond its common monetary policy toward encouraging its core group of countries to develop a more unified fiscal policy as well. | With the court’s support for the permanent bailout fund, Europe is moving beyond its common monetary policy toward encouraging its core group of countries to develop a more unified fiscal policy as well. |
| “We are creating an institution that will have its own dynamics, become more and more powerful,” said Guntram B. Wolff, the deputy director at Bruegel, a research organization in Brussels. “This would be the start of a new and stronger European core.” | “We are creating an institution that will have its own dynamics, become more and more powerful,” said Guntram B. Wolff, the deputy director at Bruegel, a research organization in Brussels. “This would be the start of a new and stronger European core.” |
| Melissa Eddy reported from Berlin. | Melissa Eddy reported from Berlin. |
Nicholas Kulish reported from Karlsruhe, and Melissa Eddy from Berlin. Elisabetta Povoledo contributed reporting from Rome. | Nicholas Kulish reported from Karlsruhe, and Melissa Eddy from Berlin. Elisabetta Povoledo contributed reporting from Rome. |