President Joachim Gauck Signs off on Creation of ESM

New German President Joachim Gauck delivers his speech after the oath of office at the parliament in Berlin (AP)

Germany’s president signed off Thursday on the eurozone’s permanent €500 billion ($645.5 billion) rescue fund and Europe’s budget-discipline pact, bringing the continent’s supposed financial firewall a step closer to completion.

President Joachim Gauck signed the legislation a day after Germany’s Federal Constitutional Court rejected calls for an injunction blocking the measures, his office said.

However, the court did insist that Germany fulfill some conditions — notably, ensuring there are legal guarantees that Parliament must vote on any further increases in Germany’s contributions to the fund, the European Stability Mechanism. Germany is liable for about 27 percent of the European rescue program.

For those of you playing at home, that’s approximately €190 billion ($250 billion).

Gauck’s office said that once the government has fulfilled those conditions, the ESM still requires a further formal step of ratification by the president to take effect. The new fund’s board of governors is slated to hold its first meeting Oct. 8.

The bailout fund will take its place alongside plans announced by the European Central Bank last week to buy unlimited amounts of short-term government bonds issued by troubled countries — if those nations apply for help from the ESM. The ECB plan has been criticized by some in Germany, but Chancellor Angela Merkel has signaled her backing (which is odd considering she used to be the austerity champion).

Merkel made clear Thursday that, despite the past week’s boost to the 17-nation eurozone’s rescue efforts, neither program alters the need for struggling countries to cut their deficits and enact economic and labor market reforms.

“If we want things to get better, then we can’t send the wrong signals and act as though lasting and sustainable progress were possible without such reforms,” she said in a speech to a trade group.

President Joachim Gauck Signs off on Creation of ESM

German Chancellor Angela Merkel (AP Photo/Markus Schreiber)

“The homework must be done at home, in the countries,” she said. “The ECB [European Central Bank] cannot replace political action.”

She insisted that aid will continue to come with strings attached. “We show solidarity, of course, but there is support only when things are done to overcome the problems.”

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The Associated Press contributed to this report. All photos courtesy the AP.