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Business

Berlin approves ESM supplement limiting liabilities

The German government has thrown its weight behind a supplement to the European Stability Mechanism which puts an explicit ceiling on nations' liabilities. Parliament has to be kept briefed about transactions.

The German coalition government of Christian Democrat Chancellor Angela Merkel on Wednesday approved a crucial supplementary text to the European Stability Mechanism (ESM) as the eurozone's instrument to avoid future large-scale financial shocks.

The added rider was required to meet demands from Germany's Constitutional Court for an unambiguous ceiling on liabilities - and for guarantees provided by Germany and all other eurozone countries.

The supplement means that Germany must not pledge to provide more than 190 billion euros ($244 billion) without the explicit consent of the German representative on the ESM board. Generally, the rider says that no provision of the treaty may be interpreted as leading to payment obligations higher than the portion of the authorized capital stock corresponding to each ESM member.

Ratification now a formality

The second important aspect of the supplement is that both chambers of the German Parliament are assured of being informed about every financial transaction made within the ESM framework.

Berlin said the rider was to be jointly adopted by all ESM nations in Brussels as a prerequisite for Germany finally ratifying the treaty. "The government is convinced that the adopted rider fully answers the demands of the Constitutional Court and that we'll be able to put the treaty into effect soon," the Finance Ministry said in a statement.

Germany is the only eurozone country which has not yet ratified the ESM accord, not least due to months of fiery debates on resulting liabilities and the desired firepower of the stability mechanism.

hg/msh  (dapd, dpa, Reuters)