Germany Clears Last Hurdle to ESM Bailout Fund Ratification

Germany cleared the last legal hurdle to ratifying the euro zone's new bailout fund on Wednesday with a cabinet declaration that addresses concerns raised by the country's Constitutional Court.

Germany is the last country in the 17-member euro zone to complete ratification of the European Stability Mechanism (ESM), an important tool to stem the three-year debt crisis that has forced bailouts of Greece, Ireland and Portugal and now threatens big countries like Spain and Italy.

German ratification was held up for months by legal complaints against the ESM. The Constitutional Court finally gave the bailout fund the green light on September 12 but said the government must also meet certain conditions.

In line with that ruling, the declaration approved by Chancellor Angela Merkel's center-right cabinet stated that the German parliament would have veto rights over any increase in Berlin's contribution to the 700 billion euro ESM.

Germany's contribution is now capped at 190 billion euros.

The lower house of parliament, the Bundestag, will debate the declaration later on Wednesday but no vote is required.

The Bundestag and the upper house Bundesrat approved the ESM in June with large majorities.

President Joachim Gauck signed the ESM legislation on September 13, a day after the Constitutional Court ruling, but said formal ratification would only be complete when the government had met the court's conditions.

The ESM is expected to be up and running by the end of October. The head of the Eurogroup of finance ministers, Jean-Claude Juncker, has said member states will pay 32 billion euros into the ESM in two tranches next month, effectively giving it an initial lending capacity of roughly 200 billion euros.

(Reporting by Gareth Jones)