[JURIST] The European Court of Justice (ECJ) [official website] ruled [press release, PDF] Tuesday that the euro zone’s permanent bailout fund, the European Stability Mechanism (ESM) [official website; BBC backgrounder], is in line with European law, following a referral from the Ireland Supreme Court. The referral arose from a claim made by a member of Irish Parliament that the ESM, an amendment to the Treaty on the Functioning of the European Union (TFEU) [text, PDF], entails an alteration of the competences of the EU. Specifically, the ESM is inconsistent with provisions of the EU’s founding treaties, such as the TFEU, concerning economic and monetary union and general principles of EU law. The ECJ held that the ESM does not encroach on the exclusive competence held by the EU in neither the area of monetary nor economic policies for euro zone Member States. The court stated, “[i]t is not the purpose of the ESM to maintain price stability, but rather to meet the financing requirements of ESM Members … [and] to safeguard the stability of the euro as a whole.” The court went on to say that since the provisions of the TFEU do not confer any specific power on the EU to establish a stability mechanism, the member states are entitled to conclude an agreement between themselves for the establishment of such a mechanism. Approval from the EU’s high court now paves the way for full implementation when the amendment takes effect on January 1, 2013.

In March 2011, the European Council adopted the ESM as an amendment to the TFEU. In February, the member states approved the establishment of the ESM, giving it full legal personality. Since its adoption, the ESM has come under legal scrutiny throughout the euro zone. Like in Ireland, critics of the amendment in Germany wanted the measure to be subject to a referendum. In September, the Federal Constitutional Court of Germany rejected [JURIST report] a preliminary injunction to halt the implementation of the ESM’s 500 billion euro fund, stating that the parliament did not unconstitutionally impair its own ability to adopt and control the nation’s budget. However, the court did impose a cap on Germany’s contribution to the fund. In July the court had heard arguments [JURIST report] over a claim brought in opposition to the ESM. In June the court ruled [JURIST report] that the German Bundestag has the right to be heard on the European financial crisis, holding in a case initiated by the Green party that Chancellor Angela Merkel failed to notify the parliament early enough about plans for the ESM regarding its sister party in Austria. Although that decision did not have any effect on the 500 billion euro ESM, it increased the parliament’s rights by requiring the chancellor’s government to provide notice to the parliament as early as possible in the future. A previous ruling that gave the parliament similar rights over matter concerning the EU was issued in February. The country’s constitutional court held [JURIST report] that the use of a parliamentary subcommittee to fast-track decisions related to eurozone bailouts is unconstitutional. Rather, it required the entire Bundestag to overview such decisions.