by Richard Barley
Wall Street Journal
September 8, 2011
Every silver lining has a cloud.
Markets breathed a sigh of relief Wednesday after Germany's Constitutional Court ruled the country's participation in Europe's bailouts was legal. In truth, it always was likely the court would do so. But future bailouts will face greater parliamentary oversight. More significantly, the court's ruling also points to constitutional difficulties if the euro zone pursues real fiscal integration, including common-bond issuance.
The court was asked to rule whether the bailouts and guarantees agreed to by the German government had violated some parts of the country's Basic Law. This constitutional law enshrines key democratic principles, including the right to elect a Parliament that is responsible to and representative of German voters alone. That requires that parliamentarians remain in control of budget-policy decisions. The court ruled that because the bailouts are limited and conditional, Parliament could take a view on their potential effect on budget policy. Moreover, there was no automatic means by which Parliament was relinquishing its right to control budget policy in the future. Thus, the Basic Law hadn't been violated.
The court required, however, that the government must in the future gain approval from the parliamentary budget committee to give guarantees, rather than merely attempting to do so. That may not be too much of a problem for German approval of any further rescues, although it may inspire other euro-zone member states to institute similar policies.
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