Bailout battle

The Karlsruhe-based Constitutional Court opened a hearing on Tuesday in a case challenging government financial interventions such as the bailout packages - totaling 273 billion euros ($396 billion) - for Greece, Ireland and Portugal.

A group of German euroskeptic academics led by Joachim Starbatty filed the case last year. The group argues that creating rescue funds violates the European Union's "no-bailout clause," which says neither the EU nor member states should take on the liabilities of individual governments.

In court on Tuesday, Finance Minister Wolfgang Schäuble said "a common currency cannot survive without solidarity among its members," referring to the 17 countries that share the euro currency.

Andreas Vosskuhle, chairman of the panel of judges hearing the case, added that it was not the court's role to pass judgment on the European Union or economic strategies, but merely interpret Berlin's authority to lend to foreign countries and accept liability.

Fears of bringing down the euro

Experts like Commerzbank chief economist Jörg Krämer expect the court to set clear conditions for any new package.

"Many economists agree that the bailout packages for the peripheral countries, for Greece, contradict the spirit of the Maastricht treaty," said Krämer.

"However, if you carefully read the EU treaty, you can't say that it is explicitly forbidden to lend support to peripheral countries," Krämer said, adding that the German constitutional court is unlikely to rule against the bailout packages. "It won't decide on anything that would stop the bailout mechanism, because the court would not risk bringing down the European monetary union."

The court may, however, set requirements for future bailouts, he said.

Euroskeptic Starbatty, also an economist, acknowledges that the court is unlikely to require the German government to withdraw its financial commitments to the current fund, but he does expect the judges to criticize what he and his co-plaintiffs argue is an infringement on the German parliament's budget rights.

"If the court were to say that everything that is being done now is unconstitutional, Greece would have to leave the currency union, and there would be a debt rescheduling," said Starbatty. "There's no escaping that. What we're doing now isn't solving any problems. Continuing to give Greece money so it can pay its creditors, only means pushing Greece further into the debt trap. It's a bail-out for the banks, but without saving the European currency system," he added.

A ruling in the case is expected within three months.

Author: Daphne Grathwohl / db, rc, mz
Editor: Michael Lawton