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Germany's supreme court OKs European bailout fund

September 12, 2012 |  4:00 am

Germany court

BERLIN -- Germany's supreme court has rejected petitions to block ratification of Europe's $640-billion rescue fund, giving the go-ahead for a key element of European leaders' strategy for combating the continent's long-running debt crisis.

The constitutional court was petitioned by 37,000 Germans who argued that the European Stability Mechanism, or ESM, contravened the country's constitution.

In what was viewed as one of the most important decisions in the court's 61-year history, the justices dismissed the petitions but imposed some significant conditions on the use of the ESM, namely a limit to Germany's liabilities.

The court ruled that a cap of 190 billion euros, about $245 billion, had to be set on Germany's contribution before the ESM was ratified. If the German parliament decides to back further funds, it can still do so. But the court's proviso will go some way to appease German taxpayers whose enthusiasm for the euro has waned significantly over their growing dissatisfaction that their money is being used to prop up debt-laden, reform-shy economies in southern Europe.

“The review has concluded that the laws that were challenged, with high probability, do not violate the constitution,” Andreas Vosskuhle, the court's president, said as onlookers in the courtroom stood to hear the verdict read out. “Hence the motions for a temporary junction are to be rejected."

Markets reacted positively to the news, with the euro reaching a four-month high against the dollar out of apparent relief that some of the conditions to be imposed on the bailout fund appear to be less cumbersome than had been feared.

German Chancellor Angela Merkel is expected to react to the ruling when she addressed the Bundestag later in the day. The ruling amounts to a considerable boost for her and her government, which championed the rescue fund.

Members of the German parliament expressed relief that the Bundestag's backing of the bailout fund and Europe's fiscal pact, which imposes budgetary discipline on its signatories, had not been toppled by the court.

“Finally the ESM can start to operate,” Frank-Walter Steinmeier, head of the opposition Social Democrats, said.

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-- Kate Connolly

Photo: Andreas Vosskuhle, the president of Germany's constitutional court, arrives at the court Wednesday ahead of a key ruling on the legality of Europe's permanent bailout fund. Credit: Thomas Kienzle / AFP/Getty Images

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