Europe's debt crisis strategy suffers setback

Berlin: Europe's new strategy on resolving the debt crisis suffered a setback when Germany's highest court ordered a stay on the setting up of a special parliamentary fast-track committee to take speedy decisions on the allocation of funds from the euro-zone's emergency bailout facility.

The committee was constituted earlier this week and its inaugural session was scheduled for Friday. However, that meeting was cancelled following the court order.

The Federal Constitutional Court in Karlsruhe issued an injunction against the nine-member parliamentary control committee on the European Financial stability Facility (EFSF) and barred it from taking any decisions on the allocation of rescue funds until all doubts about its constitutionality are cleared.

The court order will make future allocation of Germany's share of 211 billion euros in the bailout fund a long and weary process as the Bundestag, the lower house of parliament, will have to be fully involved in taking every decision on EFSF.

The court decision comes a day after the leaders of the EU at an emergency summit in Brussels reached a deal on a three-pronged strategy to resolve the 18-month old euro zone sovereign debt crisis, including a plan to leverage the credit guarantee capacity of the EFSF to over 1 trillion euros.

The EU leaders had also agreed to write down 50 per cent of heavily indebted Greece's debts with the involvement of private creditors as part of a second bailout package of around 100 billion euros.

The new package aims at bolstering the capital structure of European banks with 106 billion euros fresh capital by June 2012 to withstand the shock of the debt relief and future defaults by euro zone governments.

The Bundestag special committee on the EFSF was set up earlier this month when the lower house of parliament passed a legislation on a decision by the EU leaders three months ago to increase the size of the EFSF from 260 billion euros to 440 billion euros and to give it new powers to prevent the debt crisis engulfing the entire euro zone area.