Germany's top court has cleared the way for the ratification of the European Stability Mechanism, or ESM, rejecting temporary injunctions against the bailout fund and the fiscal compact in its much-anticipated judgment on Wednesday. However, the court imposed certain conditions, including capping Germany's ESM liability.
The court said Germany must cap its bailout fund liability at EUR 190 billion and further expansion of the country's ESM share needs to get the backing of the Parliament. Also, both houses of the Parliament must be informed of any decisions on the ESM in future, the Court said.
"No provision of this Treaty may be interpreted in a way that establishes higher payment obligations for the Federal Republic of Germany without the agreement of the German representative," the court said in a statement.
"A ratification of the ESM Treaty is therefore only permissible if the Federal Republic of Germany ensures an interpretation of the Treaty which guarantees that with regard to their decisions, Bundestag and Bundesrat will receive the comprehensive information which they need to be able to develop an informed opinion," the court ruled.
The court ruling will allow German President Joachim Gauck to sign the Treaty into law. Germany is to contribute 27 percent of the rescue fund.
In a statement issued after the German court ruling, Eurogroup Chairman Jean-Claude Juncker said he will convene the inaugural meeting of the ESM Board of Governors on October 8 in Luxembourg.
He also said the treaty on Stability, Cooperation and Governance in the Economic and Monetary Union (TSCG) "will enter into force once twelve euro area Member States have ratified it, but not earlier than 1 January 2013."
Meanwhile, European Commission President Jose Manuel Barroso proposed a single supervisory mechanism, or SSM, for the euro-area banks. The new mechanism will give ultimate supervisory responsibility related to financial stability of all banks in the euro area to the European Central Bank.
The Commission is proposing to have the single supervisory mechanism in place by January 1, 2013. As a first step, as of January 1, 2013, the ECB will be able to decide to assume full supervisory responsibility over any credit institution.
"We want to break the vicious link between sovereigns and their banks. In the future, bankers' losses should no longer become the people's debt, putting into doubt the financial stability of whole countries," European Commission President Jose Manuel Barroso said while presenting the plan.
The Commission also recommended that the European Banking Authority (EBA) develop a Single Supervisory Handbook to preserve the integrity of the single market and ensure coherence in banking supervision for all 27 EU countries.
The Commission called on the European Union Council and European Parliament to adopt today's proposed regulations by the end of 2012.
Last Thursday, the ECB had announced its decision to engage in outright monetary transactions or OMTs, which will allow the bank to purchase sovereign bonds in the secondary markets.
Under ECB chief Mario Draghi's plans, the central bank would buy a potentially unlimited amount of bonds of debt-stricken Eurozone members on the condition that these countries made a formal request for bailout funds and stuck to the terms of any deal.
by RTT Staff Writer
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