As World Watches, Merkel Finds Hands Tied On Euro Rescue

As markets and debt-wracked Eurozone countries cry out to Chancellor Angela Merkel for immediate action, a defiant top court and a strengthened role for Germany's parliament are slamming on the brakes.

On Thursday, German MPs will be dragged back from holiday to vote on a rescue package worth up to 100 billion euros ($123 billion) for beleaguered Spanish banks. Germany's parliament has to vote on all Eurozone bailouts.

Then on September 12, much later than Berlin had hoped, the Constitutional Court will rule on a raft of legal challenges to two of the Eurozone’s key crisis-fighting tools -- the fiscal pact and the ESM bailout pot.

Neither the parliament nor the court is expected to derail the battle against the Eurozone’s more than two year crisis.

Germany's opposition has signaled it will vote in favor of the Spanish bank aid, meaning it should pass with a large majority, despite a handful of Merkel's own political allies likely to rebel.

And the court is expected to clear the way for the 500-billion-euro ESM to be signed into law, although experts believe it may insist on still greater powers for the parliament in future European crisis issues.

But procedural delays in Europe's top economy are doing little to calm jittery markets, said Carsten Brzeski, an analyst at ING bank in Brussels.

While the court's decision in September "should still be quick enough not to derail markets", it "will not lower uncertainty in the coming weeks," said the economist.

"Maybe even more importantly, the upcoming verdict is another reminder that the destiny of the monetary union is not exclusively in the hands of policymakers," he added.

"Europe has to wait for Germany," wrote the Koelner Stadt-Anzeiger regional daily on its front page.

Meanwhile, business daily Handelsblatt pointed to the catastrophic consequences of a "nein" from the Constitutional Court in September.

This would effectively destroy the ESM which needs Germany's green light to come into being. It has already been substantially delayed from its original entry into force on July 1.

"If Germany of all countries cannot ratify the ESM, this would presumably spark a wave of speculation against Italy and Spain, which would tear the euro apart," wrote Handelsblatt.

Merkel herself appears relaxed about Thursday's vote, telling ZDF in a weekend interview "we always get the majority we need."

But Finance Minister Wolfgang Schaeuble has warned of grave consequences for the world economy from what newsweekly Spiegel called "two months of limbo" before the court ruling.

"We have asked the court to decide as quickly as possible because we are in an extraordinarily critical situation. The risk of contagion to the whole Eurozone is very high," Schaeuble told German radio.

"If we have further disruption in the Eurozone, that is a danger for the whole world economy," said the minister in an interview before the court set a date for the verdict.

However, some analysts say markets have broadly taken in their stride the delay to the ESM ratification process and note that Germany is not alone in failing to pass the laws quickly.

Erik Nielsen, global chief economist at UniCredit, said the court would likely clear the way for ratification but insist on greater say for deputies, which could stymie further efforts at tackling the crisis.

"The court will slightly strengthen the oversight by the Bundestag and hence tie the government a bit closer to its parliament," said Nielsen, referring to the German lower house of parliament.

"This makes future processes slightly more cumbersome for any sitting German government, but it won't derail German support for further European integration."