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German Chancellor Angela Merkel, centre, and other lawmakers cast their ballots during the vote for ratification of the European Union fiscal pact in Berlin June 29, 2012. (FABIAN BIMMER/Reuters)
German Chancellor Angela Merkel, centre, and other lawmakers cast their ballots during the vote for ratification of the European Union fiscal pact in Berlin June 29, 2012. (FABIAN BIMMER/Reuters)

German lawmakers approve EU bailout fund, fiscal pact Add to ...

German lawmakers approved the euro zone’s permanent bailout scheme and new budget rules on Friday, but legal hurdles remain and Chancellor Angela Merkel’s concessions to euro zone partners Italy and Spain may make those harder to overcome.

The outcome of the vote was never seriously in doubt after opposition parties agreed to back the budget rules, or “fiscal compact,” in return for growth and job creation measures. Ms. Merkel needed their support to get a required two-thirds majority.

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“Today Germany, with the approval of the fiscal pact and the ESM by all parties in both houses of parliament, will send an important signal ... that we are overcoming the European debt crisis in a sustainable way,” Ms. Merkel told the lower house, the Bundestag, before the votes.

The Chancellor had returned for the debates and the vote from a European Union summit in Brussels, which agreed to give the euro zone’s bailout funds more flexibility to stabilize bond markets and to directly recapitalize banks in the future.

Parliament’s upper house, which represents Germany’s 16 states, approved both plans later in the evening, but its approval doesn’t mean that the legislation will take effect immediately.

Germany’s Federal constitutional Court has asked President Joachim Gauck not to sign it into law immediately after Friday’s parliamentary votes so that it has time to decide on expected calls for injunctions blocking the legislation. A decision could take as much as a few weeks.

Ratification of the two tools for combating the debt crisis may also force Germany to test its commitment to Europe in a referendum as anger grows over aid to weaker states.

Ms. Merkel insisted the deal at the summit to use the rescue funds to ease Spanish and Italian borrowing costs without extra austerity measures, and to recapitalize banks directly, did not violate her mantra of no aid without conditionality.

But it could exacerbate impatience with the bailouts in Germany, which has no big Euro-skeptic party, but where Ms. Merkel’s centre-right coalition includes a small but vocal band of rebels who voted “no” to the ESM in the Bundestag on Friday.

Klaus-Peter Willsch, a member of the Bundestag from Ms. Merkel’s Christian Democratic Union (CDU), said the concessions would result in “Germany being liable for everyone.”

CDU budget expert Norbert Barthle said the Bundestag must approve any future decisions on direct recapitalization of euro zone banks by the ESM, adding: “Clearly such aid would also only be guaranteed under strict conditions and control.”

While backing the fiscal compact on Friday in return for government concessions on economic growth, opposition parties repeated their criticism of Ms. Merkel’s emphasis on austerity measures, saying they had exacerbated the euro crisis.

“I only hope the growth initiatives have not come too late,”

Sigmar Gabriel, chairman of the centre-left main opposition Social Democratic Party (SPD), told the Bundestag.

“We are voting ‘yes’ [to the fiscal pact] because Europe is more important than party political rivalries.”

The bailout scheme cannot come into effect without German backing as it needs approval by countries making up 90 per cent of its capital base. This has now been put back to July 9, with only a handful of the euro zone’s 17 countries having complied.

But Germany risks missing the second deadline, too, due to the need for the backing of the Constitutional Court, which has slapped the government’s wrist before for taking short cuts on European policy.

This could take weeks. In a series of rulings since 2009, the court in Karlsruhe has expressed reservations about the steady transfer of power to Brussels, and affirmed the right of Germany’s parliament to vet decisions taken at European level.

Tension between Germany’s democratic principles and a push to give Brussels more power to intervene in national policy appears to be approaching breaking point.

The court, bombarded by petitions from politicians and academics to block the ESM, may decide to clear the bailout and fiscal pact but demand steps “to ensure that the upper and lower houses of parliament are sufficiently involved,” said Daniel Thym, law professor at the University of Constance.

There is a chance it could link approval to a change in the constitution – which would require Germany’s first national referendum in the post-war era. At the very least, experts say the could warn that approval of any future integration, beyond the ESM and fiscal compact, would require constitutional change.

Calling a referendum would be a risky ploy in Germany, where Adolf Hitler gave plebiscites a bad name in the 1930s by using them to amass power as Fuehrer, stuff the Reichstag with Nazis and legitimize occupying the Rhineland and annexing Austria.

But europhile Finance Minister Wolfgang Schaeuble says the changes being contemplated – on the road to “political and fiscal union” – may need a referendum sooner than many think.

The leader of Ms. Merkel’s Bavarian ally, the Christian Social Union, Horst Seehofer, wrote in business daily Handelsblatt: “Politicians cannot simply impose more Europe on us from the top down ... That’s why I’m pleading for our constitution to allow us to have referendums on all important European matters.”

With a report from the Associated Press

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