German court approves eurozone bailout fund

Germany's highest court has approved the eurozone's €500-billion rescue fund, allaying fears of a possible blockage of the creation of the European Stability Mechanism (ESM).

The ruling comes just a week after the European Central Bank's (ECB's) decision to provide unlimited intervention in the sovereign bond markets to bring down borrowing costs of struggling eurozone nations. (See: ECB unveils unlimited bond purchase plan to save the euro)

The German constitutional court's decision should pave the way for the ESM to come into force as planned next month to rescue troubled eurozone nations such as Spain and Italy. It is expected that the rescue fund in which Germany, the eurozone's largest economy has a 27-per cent share, can become fully operational by the beginning of next year.

Nevertheless, the court has attached a key condition to the ruling that any additional German contribution to the fund, other than the earlier-approved €190 billion would need further ratification of the parliament.

Around 37,000 Germans had petitioned to block the ESM arguing that ceding too many powers to the European institutions was unconstitutional.

The decision was a step forward for the German chancellor Angela Merkel who said that it has sent a strong signal of Germany's commitment to Europe and beyond.