Germany's top court is set to deliver a crucial judgment on the viability of the European Stability Mechanism, or ESM, and the fiscal pact on Wednesday, which would decide the fate of the EUR 500 billion bailout fund and the future course of the region's fight with the protracted debt crisis.
While politicians expressed confidence that the bailout fund will survive, many economists feel that the Federal Constitutional Court in Karlsruhe may delay the ruling or even impose some conditions, rather than rule against it. Both houses of the Parliament approved the ESM and the fiscal pact on June 29, with two-thirds of the German lawmakers voting in favor of it.
Peter Gauweiler, a lawmaker in Chancellor Angela Merkel's ruling party and one of the plaintiffs who lodged a temporary injunction request against the ESM, said in a statement on Sunday that the fund should not be ratified until the ECB revoke its plans to become "a hyper rescue fund."
The plaintiffs also argue that the bailout fund infringed Germany's budgetary authority, according to reports.
Last Thursday, the ECB 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.
"Under appropriate conditions, we will have a fully effective backstop to avoid destructive scenarios with potentially severe challenges for price stability in the euro area," Draghi said after last week's Governing Council meeting.
Meanwhile in Greece, Prime Minister Antonis Samaras and his two coalition partners failed to reach an agreement on the EUR 11.5 billion spending cuts requisitioned by the troika. Samaras is in talks with the troika representatives after they reportedly rejected a part of the austerity plans prepared by the government.
The German court ruling coincides with the Dutch elections, which will show if voters will back the parties that signed an austerity agreement to cut down the budget deficit by 3 percent of the GDP by 2013.
Meanwhile, in an interview to Spanish television on Monday, Spanish Prime Minister Mariano Rajoy said the government has not yet taken a decision to request a bailout.
He said he will look at the conditions that the European Union will impose if the country requests a bailout. Rajoy said he could not accept being told where the government had to cut spending. The leader vowed that he would not, by any chance, cut pensions.
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