Setback to Europe debt crisis | business | Hindustan Times
Today in New Delhi, India
Sep 20, 2017-Wednesday
-°C
New Delhi
  • Humidity
    -
  • Wind
    -

Setback to Europe debt crisis

Europe's new strategy on resolving the debt crisis suffered a setback when Germany's highest court ordered a stay on the setting up of a special parliamentary fast-track committee to take speedy decisions on the allocation of funds from the euro-zone's emergency bailout facility.

business Updated: Oct 29, 2011 16:22 IST

Europe's new strategy on resolving the debt crisis suffered a setback when Germany's highest court ordered a stay on the setting up of a special parliamentary fast-track committee to take speedy decisions on the allocation of funds from the euro-zone's emergency bailout facility.

The committee was constituted earlier this week and its inaugural session was scheduled for Friday. However, that meeting was cancelled following the court order.

The Federal Constitutional Court in Karlsruhe issued an injunction against the 9-member parliamentary control committee on the the European Financial stability Facility (EFSF) and barred it from taking any decisions on the allocation of rescue funds until all doubts about its constitutionality are cleared.

The court order will make future allocation of Germany's share of 211 billion euros in the bailout fund a long and weary process as the Bundestag, the lower house of parliament, will have be fully involved in taking every decision on EFSF.

The court decision comes a day after the leaders of the EU at an emergency summit in Brussels reached a deal on a three-pronged strategy to resolve the 18-month old euro zone sovereign debt crisis, including a plan to leverage the credit guarantee capacity of the EFSF to over 1 trillion euros.

The EU leaders had also agreed to write down 50% of heavily indebted Greece's debts with the involvement of private creditors as part of a second bailout package of around 100 billion euros.

The new package aims at bolstering the capital structure of European banks with 106 billion euros fresh capital by June next year to withstand the shock of the debt relief and future defaults by euro zone governments.

The Bundestag special committee on the EFSF was set up earlier this month when the lower house of parliament passed a legislation on a decision by the EU leaders three months ago to increase the size of the EFSF from 260 billion euros to 440 billion euros and to give it new powers to prevent the debt crisis engulfing the entire euro zone area.

The fund is left with around 250 billion euros after it bailed out Portugal with 78 billion euros early this year and gave 85 billion euros to Ireland in November, last year to avert a bankruptcy.

Further increasing the size of the fund is extremely controversial in Germany, the largest contributor. Therefore, the EU leaders agreed at their summit on Wednesday to bolster it by using the credit leverage mechanism so that it will be in a position to support larger economies such as Spain or Italy if they needed a bailout.

The Federal Constitutional Court issued its injunction in response to a petition by two parliamentarians of the opposition Social Democratic Party (SPD) who complained that their right to take a decision on Germany’s participation in the EFSF has been violated by the special committee.

The court made it clear that until it takes a final decision on the legality of the committee, the 620-member Bundestag will have to take every decision on the allocation of Germany’s share of 211 billion euros in the bailout fund as well as on its bond-buying programme.

SPD MPs Swen Schulz and Peter Danckert expressed fears that too much power will be concentrated on the 9-member special committee, comprising of representatives from all five main political parties.

The committee, which is entitled to take speedy and secret decisions on the use of the fund, could have blocked decisions by the EFSF board of directors. They must be endorsed unanimously by all 17 nations using the single currency.

Peter Altmaier, a leader of Chancellor Angela Merkel’s Christian Democratic Union’s parliamentary group, said the Bundestag will make sure that the operation of the EFSF will not be affected by the court decision.

The Bundestag will be convened at short notice if important decisions were to be taken, he told journalists in Berlin.

Otto Fricke, budgetary affairs spokesman of Merkel’s coalition partner Free Democratic Party (FDP) said secret sessions of the Bundestag are no longer possible.

It said the purchase of government bonds in the secondary market by the European Central Bank (ECB) "is dead now", at least for the time being. If investors come to know in advance about the time and extent of ECB’s bond buying at the stock exchanges, then its effect will be lost, he said.