Berlin, Germany (FT.com) -- Germany's powerful constitutional court has rejected a series of challenges to the eurozone financial rescue packages agreed last year for Greece and other debt-strapped members of the European currency union.
In an eagerly-awaited judgment issued on Wednesday, the judges in Karlsruhe decided that the measures did not infringe the budgetary authority of the Bundestag, the German parliament in Berlin.
But they also ruled that in future the budget committee of the Bundestag must give its prior approval before any further German financial guarantees for loans to its 16 partners in the eurozone.
The judgment amounts to an important victory for the German government, although it could complicate negotiations over future crisis measures by reinforcing the parliamentary control of the Bundestag.
It lifts a cloud over the €110bn rescue package agreed last year for Greece, and the €440bn European Financial Stability Facility (EFSF) used to provide further financial assistance for both Ireland and Portugal. It should also clear the way for German parliamentary approval for further crisis measures to extend the powers of the EFSF.
Ms Merkel faces a gruelling three weeks to win the backing of her own supporters for new crisis measures, agreed by eurozone leaders last month, which go a lot further than the original plan for Greece.
The package would allow the European Financial Stability Facility -- the eurozone rescue fund -- to use its funds to buy sovereign bonds in secondary markets, issue precautionary liquidity loans to eurozone members, as well as recapitalise banks in difficulty. It would increase the size of Germany's financial guarantees for the EFSF from €123bn to €211bn ($297bn).
Carsten Brzeski, senior economist at ING Belgium, said the decision did not amount to a green light for any future rescue package.
"Today's ruling should bring some relief to financial markets as a total chaos scenario has been avoided but it should not lead to euphoria," he said. "A bigger say for German parliament in future bailouts could easily find copycats in other eurozone countries, undermining the clout of the beefed-up EFSF," as well as the permanent European Stability Mechanism to be established from 2014, he added.
He said that the ruling should clear the way for the Bundestag to approve the new reforms to the EFSF at the end of September.
A backbench rebellion within Ms Merkel's centre-right coalition on Monday night saw 19 members of her own Christian Democrat group, and six members of the Free Democratic party -- junior partners in the coalition -- defy the chancellor's appeal for parliamentary support.
Top party officials insisted on Tuesday that they still expected to win a government majority on September 29, when the Bundestag must vote on the eurozone package. But if 25 government supporters abstain or vote against, it would deny Ms Merkel a "chancellor's majority" in the parliament, and lead to opposition calls for an early election.
In a key concession last week, the German government agreed to allow the Bundestag to define its own powers to police eurozone rescue measures in the light of the court's judgment.
Previous judgments by Karlsruhe have sought to reassert the power of the German parliament over European Union legislation, on the grounds that democratic control can only be exercised at national level.
The German government has argued that the Greek rescue package and the establishment of the EFSF were emergency measures necessary to ensure the stability of the euro, implemented as a last resort, and therefore compatible with both EU treaties and the German constitution.
Ms Merkel has faced growing criticism from within her own Christian Democratic Union, after a string of poor results in state elections culminated in a further loss of support in her home state of Mecklenburg-Vorpommern at the weekend.
Opinion: I think that Germany as well as the other stable European countries to help their neighbors that need economic help. Obviously giving each country enormous quantities of money will cause a bad affect to the stable nations but a constant and enough help will help Portugal, Ireliand, Spain, Italy and Greece come out from the crisis
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