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european stability


Germany’s top court in Karlsruhe is about to deliver its verdict on whether the ongoing attempts to contain the eurozone crisis breach the country’s constitution.

The Constitutional Court will decide whether the European Stability Mechanism (ESM) bailout fund and the European fiscal treaty are legal.

It is feared a negative decision could spark fresh turmoil in the markets.

Analysts expect the court will decide the schemes are legal and can continue – but only under certain conditions.

Germany's top court in Karlsruhe is about to deliver its verdict on whether the ongoing attempts to contain the eurozone crisis breach the country's constitution

Germany's top court in Karlsruhe is about to deliver its verdict on whether the ongoing attempts to contain the eurozone crisis breach the country's constitution

The court has recently allowed steps towards greater European integration, but has insisted the German parliament be given a greater say over decisions.

Critics argue that the ESM commits Germany to potentially unlimited funding of debt-ridden southern eurozone countries.

Some 37,000 people have signed a petition to the court asking it to block the ESM, and make it subject to a referendum.


Since Germany is due to contribute 27% to the 500 billion-euro rescue fund, it cannot proceed without German ratification.

In addition to its ESM verdict, the Constitutional Court is also due to rule on a new fiscal treaty aimed at forcing eurozone governments to adhere to strict budget discipline.

This is one of the most important cases faced by the court in post-war German history.

It has caused intense debate, with politicians and lawyers from across the political spectrum joining the case against the government – from the left party, Die Linke, to dissidents from within the government party.

If the judges take a hard line against the government and in favor of the plaintiffs, then the elaborate and laborious efforts to keep the euro together will be dealt a severe blow, perhaps a fatal one.

A likely outcome is that the judges will say the treaties are within the constitution – but then put a string of caveats in place, which might constrain, for instance, how the bailout fund could be expanded in the future.

 

Eurozone finance ministers have decided to lend Spain 30 billion Euros ($37 billion) this month to help its troubled banks.

It will be the first installment of a bailout of up to 100 billion Euros, which was agreed in June.

The ministers will need to get approval from their own parliaments and hope to make the payment by the end of July.

The eurozone finance ministers also agreed to extend the 2013 deadline for Spain to cut its budget deficit to the EU limit of 3% by one year.

The yield on Spanish bonds rose sharply on Monday ahead of the meeting, with many fearing that little concrete action on Spanish banks would be reached.

Eurozone finance ministers have decided to lend Spain 30 billion Euros this month to help its troubled banks

Eurozone finance ministers have decided to lend Spain 30 billion Euros this month to help its troubled banks

“We are aiming at reaching a formal agreement in the second half of July, taking into account national parliamentary procedures, allowing for a first disbursement of 30 billion Euros by the end of the month to be mobilized as a contingency in case of urgent needs in the Spanish banking sector,” Eurogroup President Jean-Claude Juncker said.

“There will be specific conditions for specific banks, and the supervision of the financial sector overall will be strengthened,” he added.

The exact amount that Spain needs for the bailout of its banks may not be known until September.

Jean-Claude Juncker also said that Madrid should implement measures needed to bring its public finances into line with EU norms.

On Saturday, Spanish Prime Minister Mariano Rajoy announced that he would take further steps soon to cut the country’s public deficit.

In a news conference at the end of Monday’s marathon meeting, a number of appointments were also announced.

The ministers reappointed Jean-Claude Juncker as their chairman and picked German Klaus Regling to head the permanent bailout fund, the European Stability Mechanism, which is due to come into force this month.

The conclusions of the finance ministers from the 17 countries that use the euro will be submitted to a meeting of all 27 EU finance ministers later on Tuesday.

On Monday, the yield on Spanish 10-year bonds, which are taken as a strong indicator of the interest rate the government would have to pay to borrow money, had risen above 7%, while Italian bond yields had reached to 6.1%.

Yields above 7% are considered to be unsustainable in the long term.