UPDATE 2-Court delay, Spanish doubts hinder Merkel euro response

Mon Jul 16, 2012 8:30am EDT

* Top court to give ruling on crisis tools on Sept 12

* Bundestag to vote on Spanish bank bailout on Thursday

* Constitutional court had signalled verdict would take time

By Stephen Brown and Annika Breidthardt

BERLIN, July 16 (Reuters) - Chancellor Angela Merkel appears to be reaching the limits of German patience on the euro zone crisis, with the Constitutional Court and members of her own coalition seeking deeper scrutiny of whether emergency measures comply fully with national law.

The Constitutional Court said on Monday it would keep Europe waiting for nearly two more months before announcing on Sept. 12 whether Germany can legally ratify Europe's permanent bailout scheme and the fiscal pact for budget discipline.

More immediately, Merkel faces growing dissent in her own centre-right coalition about concessions she made at the last European Union summit, permitting direct help for Spanish banks, which the Bundestag (lower house) will vote on this week.

Merkel, who still enjoys a high level of popular support in Germany, is not expected to fall at either hurdle, but both may send signals that she will not be cut any more slack.

Constitutional experts see the court approving the European Stability Mechanism (ESM) and fiscal pact, albeit with warnings, while parliament's approval of Spain's banking bailout on Thursday requires only a simple majority.

Confirming on Sunday that she will seek a third term next year because she still enjoys her job, Merkel said the 2013 federal election will be a referendum on "where Europe is and what ideas we have about Europe".

Germans are already voicing frustration about the debt crisis and the financial and political demands it is making on Europe's largest economy.

Court president Andreas Vosskuhle said in last week's public hearing that the court might opt for a "very thorough summary review", which could take up to three months.

"It's not great news as it just increases the uncertainty and effectively prevents the ESM from being where it should be," said Lloyds Bank strategist Eric Wand. "But I think after last week, when they said they needed further time, the market kind of understood it wouldn't happen this side of the summer break."

Carsten Brzeski, an economist at ING, said the court in Karlsruhe was "one of few European institutions" that felt able to take its time in the crisis, but added: "I believe September is still fast enough to keep markets from falling into turmoil."

CONSTITUENTS WORRIED

The ESM, which would boost the firewall against debt crisis contagion to 700 billion euros, had been due to come into effect on July 1. It needs ratification by countries representing 90 percent of its capital to be implemented - meaning it cannot be launched without Germany, whose parliament has already approved both pieces of euro crisis legislation by a large majority.

The court last week heard complaints from groups including eurosceptic academics, citizens and some lawmakers from Merkel's own coalition that the ESM and fiscal pact violate German law by depriving parliament of control of the budget.

Some of these groups also express concern about committing to an aid package of up to 100 billion euros for Spanish banks. Finance Minister Wolfgang Schaeuble needs a green light from the Bundestag to commit Germany's share of the bailout.

"We always get the majority we need," Merkel told German TV.

But her chief whip Michael Grosse-Boehmer acknowledged that some coalition MPs faced "concerns" in their own constituencies.

This could lead to more backbenchers rebelling, after 26 MPs from Merkel's conservatives and their Free Democrat (FDP) allies voted against the ESM at the end of June, some concerned about the Spanish government not being liable for aid to banks.

That was an increase on the 19 coalition MPs who rebelled against the second Greek bailout package in February. Merkel's coalition controls 330 seats in the 620-seat house, so rebellions on that scale can force her to rely on opposition votes, a potential embarrassment.

"Clearly the Constitutional Court can take its time, which is not something we are given. Why is it not possible to do this calmly and after a proper debate?" asked Lars Lindemann, an MP from the FDP who voted against the ESM on June 29 but has not yet made up his mind how to vote on the Spanish aid this week.

Lindemann told Reuters he would only back aid for Spain's banks if there were waterproof guarantees that the Spanish state was liable - something Merkel's spokesman Steffen Seibert said on Monday was already "crystal clear".

However, Merkel said on Sunday the euro zone had not yet resolved if the current bailout fund, the European Financial Stability Facility (EFSF), and its eventual permanent successor the ESM would be liable for aid to banks in future.

In a nod to concerns that she has ceded ground on her core principle of no aid without conditions, she added: "All attempts... to say 'oh let us practice solidarity and nonetheless have no supervision and no conditions' will stand no chance with me or with Germany."

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