German court hears case against euro bailouts

By Annika Breidthardt

KARLSRUHE, Germany | Tue Jul 5, 2011 9:18am BST

(Reuters) - Germany's top court prepared on Tuesday to hear a legal challenge to the euro zone bailouts, but its finance minister said he was certain that aid payments had not violated German or European law.The Karlsruhe-based Constitutional Court convened to consider a lawsuit brought by six eurosceptic plaintiffs against German contributions to the rescues of Greece, Ireland and Portugal.
The court is not likely to block the German government's participation in bailouts altogether, or force the government to withdraw its commitments to current rescue plans, legal experts say.
But most experts, including government sources, say they expect the court to impose conditions making it harder for the government to provide fresh aid. For example, parliament's lower house may be given a bigger say in approving future bailouts.
In a sign of how seriously the German government is taking the lawsuit, Finance Minister Wolfgang Schaeuble attended Tuesday's court session, which starts at 0800 GMT.
Ahead of the hearing, Schaeuble said the government was certain that Germany's decision to commit to rescue funds "was necessary and right" and a means of safeguarding the euro.
"I cannot see that it violated the constitution in any way," he told reporters.
One plaintiff, law professor Karl-Albrecht Schachtschneider, said the euro had failed and he hoped the court would reject a system "that will lead not just to economic disaster, but also to political instability for Germany and all of Europe."
"For the first time in economic history, a currency is going on trial," Joachim Starbatty, another plaintiff and an academic who has strongly criticised the introduction of the euro, said in Monday's Berliner Morgenpost newspaper.
Other plaintiffs include Peter Gauweiler, a lawmaker from the Christian Social Union, the Bavarian sister party to Chancellor Angela Merkel's conservatives.
They argue that the bailouts violate property rights and other protections in the German and European constitutions, and break the European Union's 'no-bailout clause', which says neither the EU nor member states should take on governments' liabilities.
Together with the International Monetary Fund, the EU has since last year approved bailout packages for Greece, Ireland and Portugal totalling 273 billion euros (247 billion pounds). A second bailout of Greece is under discussion after the first turned out to be insufficient.
The first hearing will be closely watched as experts have in the past been able to gauge the outcome of cases from the kinds of questions the judges asked early on. It is not known how long the court will take to reach a verdict.
The head of Germany's Ifo research institute, Hans-Werner Sinn, also warned of dire consequences for Germany if bailout payments to debt-choked euro zone countries continued.
"The euro safety net threatens Germany's financial stability. We are at the start of a long chain of aid payments that Germany will have to make to crisis-hit countries," Sinn told the online edition of the top-selling daily Bild.
Finance minister Schaeuble, asked if without Greek aid there would be more room for tax cuts in Germany to boost the ruling coalition's popularity, said this was a tenuous link.
"Without a common European currency we would be in a much worse situation and we would not have less than 3 million unemployed but more than 5 million unemployed," he said.
"We are not just defending the European unity and the common market and common currency, but the wealth and social security of its people," Schaeuble told reporters in Karlsruhe.
(Reporting by Annika Breidthardt)