Deal, but no deal

President Joachim Gauck announced on Thursday that he would not ratify the EU's second-generation rescue fund, known as the European Stability Mechanism (ESM), until legal challenges to the fund had been cleared. The German Constitutional Court had asked earlier in the day that the president grant the Karslruhe judges time to examine a probable legal challenge from the Left party.

A spokesman for Gauck said that "the German president intends to acquiesce to this request," saying it was in the traditional spirit of cooperation between the main German political entities and out of respect to the Constitutional Court in Karlsruhe.

This decision means that the ESM and the fiscal pact will probably not be able to come into force across the entire bloc on July 1 as previously planned.

German politicians had been racing to make the deadline anyway, with a breakthrough compromise announced on Thursday between the ruling coalition and opposition parties. Both German houses of parliament, the Bundestag and the Bundesrat, are scheduled to vote on the deals on June 29.

Chancellor Merkel's spokesman Steffen Seibert rubbished suggestions that Merkel had pressed Gauck to pass the measures, telling reporters on Thursday that the chancellor "never even spoke with German President Joachim Gauck about the timing of the ratification of the ESM and the fiscal pact."

Parliamentary deal reached, before separate setback

Hours before Gauck's announcement, politicians announced that they had come up with a deal to guarantee the required two-thirds majority on the ESM and the fiscal pact. The need for a two-thirds majority meant the ruling coalition would not have been able to push the measures through without broader support.

Parallel projects designed to boost growth and create jobs, along with a push for a Europe-wide transaction tax were said to be the opposition's main requirements in return for a promise to support the two European measures.

The fiscal pact is a deal signed by every EU member except the Czech Republic and the UK. Under the terms, governments agree to keep their annual budgets within pre-existing borrowing limits, or face intervention or sanction from Brussels.

The ESM is the EU's second rescue fund, often called a "bailout" fund, that is a combination of hard currency and credit guarantees from EU member states that is set aside for future emergency loans packages like those granted to Greece, Ireland, Portugal and to Spanish banks. The fund, with a theoretical lending capacity of at least 500 billion euros, replaces the existing European Financial Stability Facility (EFSF); it is supposed to have greater flexibility to act than the EFSF.

msh/sej (AFP, dapd, dpa)