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German Court Validates Participation in Euro Zone Bailout Fund

A German court dismissed challenges to the country’s participation in the European Stability Mechanism, a fund that has rescued indebted euro zone members.Credit...Uli Deck/European Pressphoto Agency

FRANKFURT — Germany’s highest court ruled on Tuesday that the country’s government may participate in a fund set up to help financially stricken countries in the euro zone.

The decision is a defeat for skeptics of the euro and removes lingering doubts about whether Germany will contribute resources to a rescue fund that has been crucial to the survival of the euro zone.

The decision by the court, the Federal Constitutional Court in Karlsruhe, to dismiss challenges to the country’s participation in the fund was expected after the court issued a preliminary ruling in 2012. That ruling allowed Germany to contribute to the fund, called the European Stability Mechanism, provided that the German Parliament was consulted on any commitment above 190 billion euros, or $264 billion.

The decision on Tuesday removes any uncertainty about whether Berlin will continue to contribute to the fund, which has a lending capacity of €500 billion and would not be credible without the support of Germany, the euro zone’s largest and richest member.

In a unanimous decision, the eight judges who considered the case said that it was up to Parliament, which approved Germany’s participation in the fund by a large majority, to decide about the risks and benefits of such commitments.

“No one can say with certainty what measures will be best for the Federal Republic of Germany and our united Europe during the current crisis,” Andreas Vosskuhle, president of the court, said in an opening statement. Responsibility in such situations belongs to those “who are elected directly by the people,” he said.

The court also endorsed Germany’s participation in other European agreements, including the so-called fiscal pact, which is intended to impose more budget discipline on the 18 countries in the euro zone.

The European Stability Mechanism is part of a series of agreements and new institutions that European leaders created, often after tortuous negotiations, to shield the euro zone from crises like the one that nearly destroyed it in 2012. The staggering debts of some members at the time put them on the verge of needing bailouts that — after rescuing Ireland, Portugal and Greece — the currency union might have been unable to afford.

But a top official of the European Central Bank reminded leaders on Tuesday that more work needed to be done. In an appearance before the European Parliament, Danièle Nouy, who oversees the E.C.B.'s new duties as bank regulator for the euro zone, argued in favor of a speedy process for determining when a bank needed to be closed down.

German leaders, fearful that voters will be asked to rescue banks in other countries, have resisted efforts to set up a so-called resolution fund to close sick banks, which proponents say is needed to avoid a financial crisis. The Germans have also insisted on a lengthy approval process before a bank can be forced to shut down. That resolution fund, while similar in concept, would be a separate war chest from the one at issue in the German constitutional court case.

The European Central Bank needs to be able to shut down a bank in an orderly way, in the course of a weekend, Ms. Nouy said. Proponents of her argument say that such speed is required to avoid chaos in the financial markets.

“When a house is on fire, the fire brigade should not have to wait until the City Council has agreed on whether and how to intervene,” Ms. Nouy told a parliamentary committee. “It should be able to go out immediately when the fire has broken out.”

The European Stability Mechanism has provided emergency funding to countries including Greece, Spain, Ireland and Cyprus and can also be used to help recapitalize banks. Besides the lending capacity of €500 billion, the euro zone countries have pledged to make additional money available, raising the overall size of the war chest to €700 billion. Germany’s commitment of €190 billion accounts for 27 percent of that larger figure, making it the biggest contributor in the euro zone.

Without the money provided by the fund, it is questionable whether the euro zone would have survived the debt crisis that began in 2010.

A diverse group of Germans had challenged the legality of the country’s participation in the fund, including leftists in Parliament, dissident members of Chancellor Angela Merkel’s centrist Christian Democrats, and some 37,000 private citizens.

They argued that the government had ceded too much of its budgetary authority to the European Stability Mechanism, violating a constitutional requirement that Parliament retain control over taxpayer money.

Hans-Werner Sinn, a German economist who testified before the high court during oral arguments, said that the decision “sets the standard for unconstitutionality too high.” Under the decision, Parliament will not be able to reclaim its control over European Stability Mechanism expenditures until it is too late, Mr. Sinn said in a statement.

The same euroskeptic groups also challenged a program set up by the European Central Bank — one that has yet to be deployed — to buy bonds of countries in crisis to help keep their borrowing costs under control. The constitutional court separated that issue and, in a ruling last month, referred the case to the European Court of Justice.

The German court in that case expressed its opinion that the European Central Bank bond-buying program violated a ban on central bank financing of governments. The European Court of Justice has not yet issued a ruling.

A version of this article appears in print on  , Section B, Page 3 of the New York edition with the headline: Germany’s Euro Zone Aid Cleared by Court. Order Reprints | Today’s Paper | Subscribe

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