UPDATE 1-German court to hear euro bailout challenge July 5

* German court will hear eurosceptics' lawsuit in July

* Unclear how long it will take for verdict

* Legal experts doubtful about success of challenge

By Diane Niedernhoefer

KARLSRUHE, Germany, June 9 (Reuters) - Germany's highest court will begin hearing a lawsuit against the efforts to stem the euro zone crisis on July 5, the court said on Thursday.

The lawsuit against euro zone rescue packages, filed last July by a group of five eurosceptics led by economist Joachim Starbatty to Germany's constitutional court, says creating the euro zone rescue funds violates the EU no-bailout clause.

The Constitutional Court in Karlsruhe did not provide any information about the duration of the hearing nor when the verdict may be announced.

Starbatty has argued that the multi-billion euro aid packages for Greece and other euro-zone strugglers are incompatible with EU treaties. The group fears the EU could end up turning into a financial "transfer union". [ID:nLDE6461P5]

The complaint lodged with the Constitutional Court argued aid for Greece was not provided for in EU treaties and could increase inflation pressures. Because it was approved in the German parliament, the law for ratification of the aid packages falls under the jurisdiction of the Constitutional Court.

Four of the eurosceptic academics had previously lost an earlier challenge to the introduction of the euro currency and legal experts doubt they will have more success on the issue of aid for Greece.

The German parliament has authorised Germany's contributions to the aid packages despite widespread public opposition. "As we argued last year, we consider it highly unlikely that the Court would really risk triggering a dramatic European crisis by ruling outright that conditional support loans for the periphery violates the German constitution," said Holger Schmieding, an economist at Berenberg Bank.

"However, it is quite possible, in our view, that the Court may use its verdict on the pending cases later this year to guide the German parliament towards a narrow interpretation of a potential ESM (European Stability Mechanism) agreement in the likely ESM ratification process this autumn."

He added: "The court may perhaps back a demand from mainstream parliamentarians that the German parliament would de facto have a veto over support loans to be disbursed under the ESM."

With the future of the euro possibly in the balance, experts have said they believe ruling the bailout illegal would be so disastrous for both the EU and the court's reputation that it has little choice but to rule against the plaintiffs. (Reporting by Diana Niedernhoefer; writing by Brian Rohan, Erik Kirschbaum and Christiaan Hetzner; editing by Hugh Lawson)