By Nick Mann | 12 September 2012

The German constitutional court has rejected efforts by opposition politicians to prevent the country ratifying the permanent €700bn European Stability Mechanism bailout fund and the eurozone fiscal compact on budgetary discipline.

In a ruling delivered in Karlsruhe this morning, the court decided the two systems did not violate German law, paving the way for President Joachim Gauck to sign them into law.

But the court said that any increase in Germany’s €190bn contribution to the ESM bailout fund, as well as well as any rise in the overall size of the fund, would have to receive parliamentary approval. Germany’s current contribution amounts to 27% of the total the fund has to draw on.

The court also raised the potential for it to separately consider plans announced last week to allow the European Central Bank to buy unlimited amounts of government bonds from countries worst hit by the eurozone crisis.

Following the ESM ruling, the president of the Eurogroup of eurozone finance ministers, Jean-Claude Juncker, said the first meeting of the ESM’s board of governors was now set to take place on October 8. The fiscal compact still required ratification from some European Union member states and would not enter into force before January 1 2013, he added.

‘Both treaties represent a major step forward towards closer fiscal and economic integration and stronger governance in the euro area,’ Juncker said. ‘They are part of our comprehensive strategy to bolster the outlook for fiscal sustainability and growth in the euro area.’

The ruling came as European Commission president José Manuel Barroso announced plans for a single supervisory mechanism for eurozone banks, which he described as a ‘major step’ towards a banking union for the single currency bloc.

‘This new system, with the European Central Bank at the core and involving national supervisors, will restore confidence in the supervision of all banks in the euro area,’ he said. ‘The European Parliament will have a crucial role to play in ensuring democratic oversight.’

He added: ‘We want to break the vicious link between sovereigns and their banks. In the future, bankers' losses should no longer become the people's debt, putting into doubt the financial stability of whole countries.’

The commission called on the European Council and European Parliament to adopt the plans for a single supervisory bank mechanism by the end of the year, alongside the three other components of the banking union. These include a single set of rules for capital requirements, a single recovery and resolution framework to avoid taxpayer-funded bailouts and a harmonised deposit protection scheme.

Barroso also used his ‘state of the union’ address in Strasbourg today to advocate a federation of nation states in Europe involving ‘deep and genuine’ economic and monetary union and a ‘coherent’ foreign and defence policy.

‘Today, I call for a federation of nation states. Not a super-state. A democratic federation of nation states that can tackle our common problems, through the sharing of sovereignty in a way that each country and each citizen are better equipped to control their own destiny,’ he said.

‘This is about the union with the member states, not against the member states. In the age of globalisation, pooled sovereignty means more power, not less.’ Barroso added that such a change would ultimately require a new European Union treaty.