BERLIN (Dow Jones)-- Europe's bailouts of struggling euro-zone countries could face fresh obstacles on Wednesday, when Germany's constitutional court rules on the bailouts' legality.
The court's judgment, highly anticipated in European capitals and financial markets, will settle whether Chancellor Angela Merkel's government breached the German people's property rights in agreeing to the initial bailout of Greece in 2010.
The court also is due to rule on whether the German government should have asked the country's parliament before taking part in the bailouts of Ireland and Portugal , as well as on the legality of the European Central Bank's purchases of government bonds.
Legal analysts say that the court is unlikely to rule that aid for euro-zone partners is unconstitutional, but that the judges could make future loan packages for euro countries subject to approval by Germany's lower house of parliament, the Bundestag.
That would subject future bailout deals to German parliamentary politics and potentially slow Europe's crisis-response times.
Upholding any of the plaintiffs' complaints would place additional strain on the euro zone's creaking crisis management, strengthening national lawmakers' prerogatives at a time when many analysts and officials say the euro zone needs more centralized decision-making, particularly in budget policy and debt management.
Market confidence in the debt of many euro-zone nations, including heavyweights such as Italy and Spain , is at its lowest since the common currency was introduced in 1999.
In anticipation of the court's decision, lawmakers from Merkel's ruling Christian Democrats and its coalition partner, the Free Democratic Party , have drafted a proposal that would give the Bundestag far-reaching veto rights over future actions by the European Financial Stability Facility.
The draft stipulates that Germany's government should be allowed to agree to future euro-zone bailouts only after parliament has approved them. But the lawmakers said they want to await the constitutional court's decision before making the draft final.
The Karlsruhe-based constitutional court, Germany's equivalent of the U.S. Supreme Court , warned in a landmark 2009 ruling that it can strike down the actions of European Union institutions if they violate the German constitution.
The court hasn't yet used that power, mindful of the political sensitivity of striking down attempts at European cooperation. Postwar Germany has consistently supported European integration as a way of reassuring neighboring countries that it no longer wants to flex its national muscles at their expense.
Thomas Mayen , chairman of the constitutional law committee of the German Lawyers' Association , says Wednesday's decision will mark a crucial moment in the relations between the E.U. and its member states. "Budgetary sovereignty is a classical right of parliaments since the earliest democratic constitutions. If it is constrained then those who are taking the decisions [the Eurogroup of finance ministers] are acting without parliamentary legitimacy," Mayen said.
The court's 2009 ruling allows it to intervene where it sees E.U. organs clearly exceeding their powers laid out in European treaties in a way that " substantially shifts" the competences of E.U. and national bodies.
Mayen argues the planned creation of a permanent euro-zone bailout fund, the European Stability Mechanism, could be seen as exactly such a shift.
Although the court has shied away from confronting Germany's government and its European policy in the past, it has been emboldened in recent days by some of the country's most authoritative figures.
Germany's largely ceremonial head of state, Federal President Christian Wulff , said in a speech late last month that the ECB's decision to buy "massive" amounts of Italian and Spanish bonds was "politically and legally questionable." German Bundesbank President Jens Weidmann , also late last month, said: " Decisions on the assumption of further risks must be taken by governments and parliaments: Only they have the democratic legitimacy to do so."
The judgment will be handed down by a panel of eight judges chaired by the court's president, Andreas Vosskuhle. The judge responsible for drafting the ruling will be Udo di Fabio , a prominent and sometimes controversial conservative with a track record of upholding the rights of nation-states.
The judgment affects two separate suits, one from a group of economics professors and the other from conservative politician Peter Gauweiler , a veteran lawmaker from the CSU, the Bavarian sister party of Merkel's party. The court has already dismissed a number of similar cases, including one from the same group of professors in 1998 that aimed to stop the euro's introduction.
That lawsuit only dealt with the hypothetical consequences of the euro. But the cost today of rescuing the common currency is increasingly evident to Germans.
Under proposals due to be voted on in the Bundestag in late September, German guarantees for the euro zone's main bailout fund would rise to around EUR211 billion ( $300 billion ).
In addition, the Bundesbank is liable for around 27% of any losses incurred on the ECB's fast-growing portfolio of government bonds, which hit EUR129 billion last week.
(END) Dow Jones Newswires
09-05-11 1638ET
Copyright (c) 2011 Dow Jones & Company, Inc.
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