Germany's top constitutional court rejected efforts to block apermanent euro-area rescue fund, handing a victory to ChancellorAngela Merkel, who championed the 500 billion-euro ($646 billion)bailout.

The Federal Constitutional Court in Karlsruhe dismissed motionsthat sought to block the European Stability Mechanism, while rulingGermany's 190 billion-euro contribution can't be increased withoutlegislative approval. The court said Germany can ratify the ESM ifit includes binding caveats it won't be forced to assume higherliabilities without its consent.

“We are an important step closer to our goal of stabilizing theeuro,” German Economy Minister and Vice Chancellor Philipp Roeslertold reporters in Berlin after the ruling today. “It has alwaysbeen the goal of this government” to establish a “clear limit andto include parliament in all important decisions.”

The legal challenge delayed efforts by Merkel and othereuro-area policy makers to stem the region's debt crisis. In theneighboring Netherlands, Prime Minister Mark Rutte, a Merkel ally,is seeking re-election today. Stocks and the euro rose after theruling. The single currency gained 0.5 percent to $1.2916 at 12:13p.m. in London, while the Stoxx Europe 600 Index rose 0.8percent.

Much of the effort to resolve the crisis hinges on the permanentESM, which is designed to go into operation when the temporaryEuropean Financial Stability Facility is phased-out next year. Thebailout fund would work in tandem with the European Central Bank'sbond buying to lower yields for states such as Spain and Italy.

Last week, ECB President Mario Draghi said the ECB was ready tobuy unlimited quantities of short-dated government bonds of nationssigned up to rescues from the ESM or EFSF. While rejecting alast-minute request for an emergency injunction over the Draghiannouncement, the court said it would review a challenge to the ECBbond-buying programs during additional hearings in the case.

Today's cases were filed after German lawmakers approved the ESMand the fiscal pact, a deficit-control treaty designed to imposebudget discipline on European Union members. About 37,000 peoplesigned up to endorse a constitutional complaint filed by politicalgroup “Mehr Demokratie e.V.” Other plaintiffs included oppositionparty Die Linke as well as Peter Gauweiler, a lawmaker fromMerkel's CSU Bavarian sister party.

Transferred Power

The challengers, which sought an injunction against the bailoutswhile the court reviewed the cases in detail, argued thecrisis-fighting legislation transfers constitutionally mandatedauthority from German lawmakers and undermines democratic rule.

The court ruled the ESM treaty must be interpreted in a way thatbans it from borrowing from the ECB, since this would violate EUlaw. The ESM also can't be allowed to deposit bonds, includingthose acquired on the secondary market, with the ECB as collateralfor loans, according to the judgment.

“Some uncertainties” about the limit on Germany's contributionto the ESM and the scope of the German parliament's say over thefund were reviewed as part of the ruling, Chief Justice AndreasVosskuhle said when delivering the ruling. The judges also saidGermany must make clear when ratifying that it won't be bound bythe treaty unless these conditions are met.

“The relevant factor for adherence to the principles ofdemocracy is whether the Bundestag remains the place in whichautonomous decisions on revenue and expenditure are made,”according to the unanimous judgment.

Lawmakers must not allow Germany to shoulder an amount it can'tcontrol or that would result in it being unable to determine itspolitical agenda, the court said.

“No permanent mechanisms may be created under internationaltreaties which are tantamount to accepting liability for decisionsby the will of other states, above all if they entail consequenceswhich are hard to calculate,” the eight judges wrote.

For today's ruling, the court chose six cases. The judges onlyhad to decide whether to halt ratification of the treaties whilereviewing the suits more closely. The German judges heard oralarguments on July 10 from groups challenging the viability of theEU's fiscal pact and the ESM, which both houses of parliamentapproved with two-thirds majorities on June 29.

Previously, the court cleared each step of European integration.Last year, the judges cleared the Greek bailout and the EFSF, whilesaying Germany may not agree to take over unlimited futureliabilities incurred by other EU member states.

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