On September 12, 2012, the German Constitutional Court dismissed several constitutional complaints that sought an injunction to prevent German ratification of the European Stability Mechanism (ESM) – a central pillar of the Eurozone’s crisis response – and the Fiscal Treaty in the preliminary phase of the proceedings (extracts in English). A full ruling is expected in a few months. German ratification is required for the ESM treaty to enter into force, and critical in financial terms for the ESM’s credibility. The Court’s preliminary ruling means that the last hurdle for the ESM to enter into force has now been cleared. German ratification should follow in the next few weeks.
The court conditioned German ratification on two reservations to the ESM treaty: first, the German capital subscription needs to be limited to 190 billion Euros, as provided by the ESM Treaty (though the ESM’s capital may be increased beyond this ceiling pursuant to the procedure forseen in Article 10 of the ESM Treaty); and second, notwithstanding the confidentiality of the ESM’s deliberations, the German Parliament needs to be fully informed about operations of the ESM. The Bundesverfassungsgericht seized its one chance to foreclose two possible, but unlikely interpretations of the ESM Treaty that would conflict with the German Constitution before interpretative authority passes to the Court of Justice under the ESM Treaty.
The Court’s insistence on two reservations is only a small “but”. The Court took issue with two aspects that are marginal to the firepower and effectiveness of the ESM. The decision has virtually no effect on how the ESM will operate, and in particular on the capital that the ESM will have its disposal. It could lengthen the German ratification process by a few weeks, but the Court’s decision has removed substantial unertainty about the Eurozone crisis response. Most other Eurozone member countries, including France and Spain, have already ratified the treaty. According to Article 48 of the ESM Treaty, the Treaty enters into force once countries representing 90 percent of capital subscriptions have ratified. The German share in of the total capital subscriptions of 700 billion Euros is just over 27 percent.