Central Bank Governor Josef Bonnici yesterday hailed as “a very positive development” the German high court’s decision to reject calls to block the permanent eurozone bailout fund.

European markets breathed a collective sigh of relief at the news of the court’s ruling.

With Germany being the biggest contributor to the European Stability Mechanism, the verdict overcomes a crucial hurdle.

It would have been very unlikely for the €500 billion bailout fund to go ahead without German backing.

Prof Bonnici said the decision allows the mechanisms agreed to by eurozone member states to start being used. “Although partly anticipated, the decision allows the ESM to come into force,” he said.

The German court’s decision came with some strings attached.

Any future change in the size of the rescue fund and Germany’s contribution must be approved by the national parliament.

Markets rallied but more importantly the borrowing costs on Spanish and Italian 10-year bonds fell. Both countries are tottering on the brink of failure and lower interest payments are crucial to their cost-cutting efforts.

The decision came on the back of last week’s plan by the European Central Bank to buy government bonds of struggling countries. The double move towards solving Europe’s debt crisis has helped stabilise jittery stock markets.

Some 37,000 people had signed a petition to the German court asking it to block the ESM, and make it subject to a referendum.

But German Chancellor Angela Merkel called it “a good day for Germany and Europe”.

The ESM takes over from the temporary European Financial Stability Facility set up in the wake of defaults in Greece, Ireland and Portugal.

ksansone@timesofmalta.com

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