Germany's constitutional court has ruled that the country's contribution to the eurozone bailout fund was legal, but said parliament must have greater say in similar decisions in the future. Markets were up on the news.
Germany's constitutional court ruled Wednesday that the country's contributions to a European Union bailout fund were constitutional. A group of professors, along with a Christian Social Union parliamentarian, Peter Gauweiler, had brought the case to the constitutional court.
In May 2010, parliament approved Germany's contribution to an emergency aid fund for Greece as part of a eurozone bailout package. In total, Germany backed 170 billion euros ($240 billion) in loan guarantees for Greece.
The ruling helped stock markets across Europe recover from a dire start to the week. Germany's blue-chip DAX index rose 4.1 percent, France's CAC 40 was up 3.6 percent and the FTSE 100 climbed 3.1 percent.
Earlier in the week, stocks had tumbled worldwide over fears of a renewed recession and the debt crisis in Europe. Experts, however, pointed out that Wednesday's rally was also helped by bargain hunters picking up cheap stocks as well as better-than-expected industrial production data out of Germany.
Wednesday's decision found that the contribution did not violate parliament's right to control spending of taxpayers' money. The court also found no proof that the amount of the guarantees went too far in exceeding the limit of the budget capacity.
The constitutional court effectively rejected claims that Germany's participation in bailout packages would leave a large hole in the budget.
However, the judges did say parliament's budget committee must have a bigger say in any future bailouts.
"The government is obliged to get the approval of the parliamentary budgetary committee in cases of large expenditures," said presiding Judge Andreas Vosskuhle.
The decision will likely make it more difficult for Germany, and therefore Europe, to move quickly on future eurozone bailouts.
Speaking in a parliamentary budget debate hours after the constitutional court announced its decision, Chancellor Angela Merkel said the ruling was a confirmation of the actions of her government and was in line with its practice of balancing solidarity in the eurozone with responsible budget measures by each country.
She also said it reinforced the government's position that Germany should remain united with the rest of Europe.
"The euro guarantees a unified Europe," she said in parliament. "If the euro collapses, Europe collapses."
Merkel hit out at critics who said Germany had been too hesitant in the crisis and too strict in its demands. "Sweeping all the problems under the carpet and talking about solidarity won't bring us stability," she said.
The chancellor faced jeers from opposition parties during her speech, and is under intense pressure from members of her coalition to resist steps like joint eurozone bonds.
Victory for euro-backers
Pia Ahrenkilde Hansen, the spokeswoman for the European Commission, also praised the decision, which had been eagerly awaited throughout the eurozone.
She said the ruling "has an important bearing on the capacity of the Union and its member states to act, to surmount the sovereign debt crisis affecting certain member states."
Proponents of using bailouts to prop up debt-ridden nations like Greece, Ireland or Portugal have argued that if those countries are allowed to financially founder, it could bring about the collapse of the euro.
However the decision adds an extra layer to any process to tweak the way the bailout mechanisms work, which could turn into a problem when time is of the essence.