Germany ratifies ESM bailout fund

Germany ratified Thursday the treaty to establish the eurozone’s new high-firepower bailout fund, the European Stability Mechanism (ESM), after a three-month legal wrangle. President Joachim Gauck signed the ratification in Berlin, his aides said. Germany is the ESM’s biggest net contributor and its endorsement was needed to ensure the fund’s launch,German Press Agency dpa reported. Estonia still has to ratify the deal for all 17 eurozone states to have signed off, but that move should take place “in the very next days,” according to Jean-Claude Juncker, the chairman of the Eurogroup panel of the currency area’s finance ministers. “The ESM is now the cornerstone of the European firewall and an integral part of our comprehensive strategy to ensure financial stability in the euro area,” Juncker said in a statement. “This is a historical achievement for European integration and a pledge of stability and sustainability for future generations,” he added. Juncker confirmed that he would convene an inaugural meeting of the 500-billion-euro (650-billion-dollar) ESM’s governors on the margins of a Eurogroup meeting on October 8 in Luxembourg. The fund is set to be run by Klaus Regling, who already served as the chief executive of the eurozone’s temporary bailout fund, the European Financial Stability Facility. Spain, which needs to recapitalize its banks, is expected to be the ESM’s first client. EU ambassadors in Brussels had paved the way for the German ratification by agreeing to a pledge that no member state could be forced into “payment obligations higher than (their) portion of the authorized capital stock” in the ESM – thereby satisfying a key German qualification. Germany had originally passed legislation to adopt the ESM at the end of June, but it was challenged by anti-bailout groups. The country’s constitutional court ruled on September 12, clearing the treaty but demanding qualifications that Germany’s liability be capped and its parliament be given access to potentially confidential ESM information. Those riders were adopted Wednesday by Chancellor Angela Merkel’s cabinet and swiftly approved in Brussels. Opponents nevertheless mounted a vain last-minute appeal. Supporters of Peter Gauweiler, a maverick conservative federal legislator, complained to the court that the qualification did not meet court requirements to modify the ESM treaty. But judges quickly ruled that it was “not evident” to them that the rider was in conflict with the court’s September 12 verdict. The court had ruled that Germany could not be held liable, without parliamentary approval, for more than the 190 billion euros (245 billion dollars) already pledged.