* Court verdict rules out euro bonds now - legal experts
* Euro bonds could come after treaty change
By Annika Breidthardt
KARLSRUHE, Germany, Sept 8 A ruling by Germany's
top court has made it virtually impossible for Berlin to sign up
to joint euro zone bonds now, even if it wanted to, politicians
and legal experts said on Thursday.
The Constitutional Court's stance on Wednesday included a
provision blocking Germany from pooling debt with its partners
-- unless the current European Union treaty is changed.
The court set out its reasoning in a keenly-awaited ruling
rejecting lawsuits aimed at stopping German participation in
bailouts for the euro zone.
The Bundestag (lower house of parliament) is "forbidden from
setting up permanent legal mechanisms resulting in the
assumption of liabilities based on the voluntary decisions of
other states", reads a passage of the verdict.
Many politicians and economists immediately read this as a
reference to euro bonds, and constitutional experts agreed.
"I understand this passage to mean that assuming liability
for the debt of other member states, and with that euro bonds in
which Germany would have to vouch for another member's debt, is
not currently admissible," said Ulrich Haede, professor of law
at the European University Viadrina in Frankfurt/Oder.
Policymakers, bankers and economists have been arguing for
months about the merits and drawbacks of jointly issued euro
zone debt, which could reduce the borrowing costs of weaker
member states like Greece and make it harder for markets to
speculate against indivdual countries.
But it would also increase the debt costs of countries with
more solid credit, such as Germany, and would be risky as the
ratings agencies say their classification would reflect the
weakest members' ratings and the bonds could even be classed as
Critics -- the German government and Bundesbank foremost
among them -- also say that euro bonds would eliminate the
incentive for indebted states like Greece and Portugal to clean
up their budgets, creating "moral hazard" and leaving the door
open to more debt trouble.
In an attempt to use the Constitutional Court ruling to kill
off the debate, German Economy Minister Philipp Roesler told the
Bundestag on Thursday that euro bonds were now off the table
Roesler, addressing himself to the centre-left opposition
which favours joint euro bonds, leads the Free Democrats (FDP),
the junior partners in Chancellor Angela Merkel's coalition who
are among the fiercest opponents to Germany assuming even more
liability for its less fiscally-disciplined partners.
"You continue to talk up euro bonds although the
Constitutional Court yesterday made it clear that a 'transfer
union' such as the one you propose on the left will never be
possible, never be allowed," Roesler said.
The German finance ministry, which also rejects euro bonds,
responded more cautiously, saying the euro bond issue required
more detailed scrutiny of the court verdict.
Asked at a news briefing whether the court ruling negated
the European Commission's work in looking into common euro zone
bonds, EU Commission spokesman Amadeu Altafaj told reporters:
"It might make it more interesting from a journalistic point of
view, but it's certainly not rendering work obsolete."
Some analysts maintain that euro bonds or some other form of
joint responsibility for debt may eventually prove the only way
to end the present crisis.
Eurogroup Chairman Jean-Claude Juncker and Italian Economy
Minister Giulio Tremonti have said publicly that euro bonds
could be implemented without treaty change.
Others say it would require such changes and analysts say a
lot is likely to depend on exactly what form the bonds would
Markus Kerber, law professor at the Europolis think tank,
said the legality of euro bonds depended on the details, since
the court had said it was up to the legislators to gauge when
guarantees given to other euro zone states exceeded levels that
would be sustainable for the German federal budget.
"Whether euro bonds are admissible depends on the amount of
risk or sovereign debt taken on with each bond," said Kerber.
His colleague Haede also observed that the court verdict
"does not rule out a treaty change which would create a legal
basis for euro bonds".
Members of Merkel's conservative bloc, including Finance
Minister Wolfgang Schaeuble, and some in the opposition have
argued that the European Union needs to change its underlying
treaties in the longer term to achieve closer integration and
ensure the stability of the single currency.
The head of the opposition Social Democrats (SPD), Sigmar
Gabriel, used the budget debate to call for a treaty change
which would make euro bonds possible in future. His party had
endorsed the idea of euro bonds ahead of the verdict.
Echoing those calls, one senior EU official said he did not
oppose issuing euro bonds in the long run but the pre-conditions
would be that every member must have a balanced budget and there
would have to be tighter control of fiscal and economic policy.
(Additional reporting by Sarah Marsh and Andreas Rinke, Paul
Taylor in Paris, Rex Merrifield in Brussels; editing by Stephen