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7 Sep, 2011 10:04

German court backs unpopular EU bailouts

The German Constitutional Court has endorsed the country’s participation in bailouts for ailing EU economies. The move was supported by German Chancellor Angela Merkel, who said that the ruling “confirms” the actions of her government.

The country’s Federal Constitutional Court has rejected lawsuits claiming that German participation in the EU bailout funds was violating parliament’s right to control how taxpayer money is spent. Still, the court’s presiding judge, Andreas Vosskuhle, announced on Wednesday that in the future lawmakers should be more involved in making bailout decisions.“The government is obligated in the cases of large expenditures to get the approval of the parliamentary budgetary committee,” he was quoted by AP news agency as saying. The court ruling said that from now on, bailout decisions cannot be made automatically, when concrete measures are adopted by governments without lawmakers’ participation. The budgetary committee will be responsible for approving such measures.    The lawsuits, which were filed by a group of prominent German lawyers and economists, said that bailouts to Greece came as a violation to the German constitution and of EU legislation.According to the group, German participation in bailout process violated limits of acceptable integration within the EU, interfering in sovereign affairs of other member states. German Chancellor Angela Merkel supported the court’s decision, saying that the ruling “absolutely confirms” the actions of her government, aimed at expressing solidarity with other EU nations.  “The euro is the guarantor of a unified Europe,” she told the parliament on Wednesday. “If the euro collapses, Europe collapses.”Germany’s parliament voted to participate in the May 2010 bailout for Greece and to support the $620 billion European Financial Stability Facility with some $207 billion in loan guarantees.

The question now is how the German parliament can use its powers of veto believes Professor Markus Kerber, a lawyer.“This verdict accepted formally is the beginning not only of the agony of the eurozone but it is the beginning of a very heavy inside fight.”“The fundamental problems of the eurozone have not been solved by the verdict we have had in Karlsruhe [where Germany’s Federal Constitutional Court is located],” the professor stresses, and “the court said they are not going to decide economic questions, which remain very wide open.” Professor Kerber comes to the conclusion that the eurozone “cannot be maintained in its current shape.”

Despite Angela Merkel’s optimism over the German court ruling, its decision has little to do with saving the euro in the long term, Patrick Young, executive director for DV Advisors, told RT. “What we are looking at today is the fact that yes, bailouts can go ahead, but at the same time it is still a very, very cloudy picture for the euro,”he said. “We know that the German people are deeply unhappy about what is going on. They do not see there being any benefit in suddenly giving a credit card and another bottle of vodka to a drowning drunken man in a department store and that is what we have got here. It is going to still be a terrible result once the market has had a bit of a relief rally which is going on as we speak.”

The court’s decision means that the German Parliament is able to restrict access to rescue funds, which is a good news both for the euro and the markets because “it means that the restrictions that were originally meant to be in place are now much better used”, believes economics professor Dr. Christian Rieck, from the Frankfurt Technical University, adding that this leverage will be used by the German side to assure the funds are used in the right way. This does not mean that the Germans would have to bail out other countries, points out the professor.“The whole bailout discussion goes a little bit in the wrong direction. We do not really bail out countries, we do bail out banks and by that we induce some thoughtful behavior by the governments, though it has more of an indirect effect.”

According to Roland Vaubel, economics professor from University of Mannheim, the German population in general is far from supportive of its government’s enthusiasm towards bailouts, particularly to Greece.”We see that the Greeks are buying gold with the money they get from the bailout fund, very unpopular, and they are not really implementing the conditions which had been attached to the credits and it is well-known that tax morale is very poor in Greece,” he said. “Germans are very upset about Greece, much more than about Portugal and Ireland,” Vaubel added. According to the economist, the ongoing crisis is very different from that which started in the US back in 2008 with the collapse of Lehman Brothers. He said that compared to the trouble of 2008, there is more optimism that governments will be able to tackle the problems arising.   ”The Lehman Brothers’ panic was due to the fact that there was the medium-sized investment bank which collapsed and people did not know whether any further banks would also be allowed to collapse, and whether the money supply will contract, as happened in the Great Depression, so there was a lot of uncertainty,” he said. ”Since the financial crisis, however, we have funds to support failing banks,” Vaubel added. “We have the experience that the governments have supported the failing banks and the money supply has not contracted and monetary base has also not contracted. So we have had an experience that the governments are very well able to deal with the crisis.”

Further south, there's clear frustration among the Italians and Spanish, with thousands rallying in protest at their governments' fresh austerity measures.Italy's €45 billion package, which has been welcomed by the EU, includes new tax hikes and plans to raise the retirement age for women.In Spain, the demonstrations came ahead of a crucial Senate vote on amending the constitution to limit national debt.Unions and rights groups say the debt cap would decimate the welfare system and hurt the most vulnerable.“People are concerned about their standard of living, prices and unemployment,” believes Juan Diez-Nicolas, professor of Sociology at the Complutense University of Madrid, but Spain will only be capable of ridding itself off its debt in several years only if “we meet what we are being asked to do, which is to cut spending and create jobs.”He adds that unless people have jobs they will not be able to pay because “you cannot have the cake and eat it, too.”