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German court to rule on eurozone rescue

German Chancellor Angela Merkel follows a session of the Bundestag (lower house of parliament) on Tuesday in Berlin.

Berlin, Germany  — Germany’s powerful constitutional court will on Wednesday rule on whether the country was right to bail out Greece and other eurozone members last year in a long-anticipated judgment that could result in greater parliamentary control over future rescues.

The judges in Karlsruhe, the highest legal authority in the federal republic, are expected to call for the German parliament to have more influence over eurozone financial assistance plans, but will likely stop short of a veto on existing aid.

The ruling on last year’s €110bn rescue package for Greece and the subsequent €440bn eurozone stability fund used to bail out Ireland and Portugal could complicate the efforts of Angela Merkel, German chancellor, to win a clear government majority for the latest moves to bolster the bloc’s crisis management measures.

Merkel faces a grueling three weeks to win the backing of her own supporters for new crisis measures, agreed by eurozone leaders last month, which go a lot further than the original plan for Greece.

The package would allow the European Financial Stability Facility — the eurozone rescue fund — to use its funds to buy sovereign bonds in secondary markets, issue precautionary liquidity loans to eurozone members, as well as recapitalize banks in difficulty. It would increase the size of Germany’s financial guarantees for the EFSF from €123bn to €211bn ($297 billion).

A backbench rebellion within Merkel’s center-right coalition on Monday night saw 19 members of her own Christian Democrat group, and six members of the Free Democratic party — junior partners in the coalition — defy the chancellor’s appeal for parliamentary support.

Top party officials insisted on Tuesday that they still expect to win a government majority on September 29 when the Bundestag must vote on the eurozone package. But if 25 government supporters abstain or vote against, it would deny Merkel a “chancellor’s majority” in the parliament and lead to opposition calls for an early election.

The key to a compromise could lie with the constitutional court, and how it defines the need for the Bundestag to exert its parliamentary authority over any future eurozone rescues. A strict ruling could make emergency crisis action more cumbersome and difficult to launch.

In a key concession last week, the German government agreed to allow the Bundestag to define its own powers to police eurozone rescue measures in the light of the court’s judgment.

Previous judgments by Karlsruhe have sought to reassert the power of the German parliament over European Union legislation, on the grounds that democratic control can only be exercised at national level.

The German government has argued that the Greek rescue package and the establishment of the EFSF were emergency measures necessary to ensure the stability of the euro, implemented as a last resort, and therefore compatible with both EU treaties and the German constitution.

Merkel has faced growing criticism from within her own Christian Democratic Union, after a string of poor results in state elections, culminating in a further loss of support in her home state of Mecklenburg-Vorpommern at the weekend.

Sunday’s vote saw a clear victory for the opposition Social Democratic party, with 35.7% of the vote, against just 23.1% for Merkel’s Christian Democratic Union. The liberal Free Democrats lost all their seats in the state parliament when their vote slumped from 9% to less than 3%.

The Bundestag will only be voting on the EFSF reforms on September 29, leaving even more controversial decisions on a new Greek rescue package, and a permanent eurozone rescue facility, until later.

Officials say that a vote on the Greek package cannot be held before October, once final details including private sector participation have been agreed with creditors.

Ratification of the European Stability Mechanism — the permanent replacement for the EFSF after 2014 — is not expected before December. Opponents of the bail-out proposals argue that the ESM vote will be the most critical of all, because the EFSF is only a temporary measure.

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