BERLIN (Reuters) ? Germany's top court handed its country's parliament a greater say over euro zone bailouts, potentially hampering Berlin's ability to act decisively against a two-year debt crisis.
The Constitutional Court rejected on Wednesday a series of lawsuits aimed at blocking the participation of Europe's biggest economy in emergency loan packages.
But it said the government must seek the approval of parliament's budget committee before granting such aid.
"This was a very tight decision. But it should not be mistakenly interpreted as a constitutional blank cheque authorizing further rescue measures," the judge told plaintiffs, government officials and members of parliament in the courtroom in Karlsruhe.
The euro briefly rose against the dollar in response.
"Today's ruling should bring some relief to financial markets as a total chaos scenario has been avoided, but it should not lead to euphoria," said Carsten Brzeski at ING.
"The ruling confirms our view that the German piecemeal approach on the debt crisis is not likely to change but eventually the German parliament will vote in favor of a second Greek bailout package and the beefed-up EFSF (euro zone rescue fund)."
With Germany's ability to act quickly constrained, the euro zone's most indebted nations are scrambling to convince investors of their commitment to tackle their debt problems.
Doubts about the will of Italy and Greece to push through the austerity demanded by their partners have darkened the political mood in Europe and triggered renewed pressure in bond markets.
Italy's center-right government promised on Tuesday to hike value-added tax as it bowed to market pressure for more action on its swollen debt and ignored mass street protests and strikes against its austerity measures.
But such has been the chaos surrounding its austerity process that markets, and more importantly the European Central Bank which has stepped in to buy Italian bonds, are unlikely to be convinced yet.
Meanwhile fiscal backsliding in Athens has put a new aid payment from the country's international lenders in danger and prompted lawmakers in German Chancellor Angela Merkel's party to call for Greece's ejection from the 17-nation currency area.
Greece's finance minister pledged to speed up delayed privatizations and structural reforms, following the suspension of talks with its lenders.
"We are in the middle of a peculiar war -- if we lose, we lose everything," Greek Finance Minister Evangelos Venizelos told reporters. "If we don't complete structural reforms, if we don't change the way the state and the economy work, we will be stuck."
Just six weeks after euro zone leaders came together in Brussels to agree on new anti-crisis measures, including a second bailout for Greece and new powers for the bloc's rescue fund, their strategy is creaking.
The consistent theme is that events have moved faster than politicians' ability to deal with them.
The leader of Germany's Christian Social Union, one of three parties in Merkel's ruling coalition, was quoted as saying he could not rule out Greece leaving the euro zone.
"I do not think that can be ruled out but I'm counting on the success of the path that has been taken with aid and consolidation efforts," Horst Seehofer, CSU chairman and Bavaria state premier, told Bild newspaper.
At a meeting with her party on Monday, Merkel was pressed repeatedly on whether it would not be preferable to push Greece out of the euro zone. She warned against it, saying such a step might set off a dangerous "domino-effect."
ITALY UNDER SCRUTINY
A confidence vote will be called which should see the Italian package passed in the Senate later on Wednesday, offering some reassurance ahead of Thursday's meeting of the ECB governing council, which has been pushing Rome for action.
Rome said it would raise value added tax and introduce a constitutional balanced budget amendment as part of a revised plan. But its credibility has taken a hammering in financial markets because of the haphazard way it has been handled.
In southern Europe, public resistance to new austerity measures is on the rise, while in the north public anger at a series of taxpayer-funded bailouts is building to a crescendo.
The ECB is counting on European governments to step in and assume the role of bond-buyer of last resort once their rescue mechanism, the European Financial Stability Facility (EFSF), receives new powers.
But for that to happen, national parliaments need to approve the changes to the mechanism -- a major hurdle in member states where aid to euro zone stragglers is increasingly unpopular.
A euro zone official said on Tuesday that a deal giving new powers to the bailout fund would be ratified by all euro zone countries by the end of September -- a timeframe that had been put in doubt when a government coalition member in Slovakia said its parliament would not vote until December at the earliest.
An arcane argument over a Finnish demand for collateral from Greece in return for new loan guarantees may also not be resolved until the end of September because of its legal complexity, euro zone officials said.
Merkel's own job may also be at risk if enough of her conservative allies vote against a stronger EFSF in a parliamentary vote scheduled for September 29.
Ireland, the third country along with Greece and Portugal to have been bailed out so far, said it would consider deeper spending cuts to foster confidence in its economy.
"The international situation is now running against us and we will probably have to mark down growth rates for 2012 which makes the budget more difficult," Finance Minister Michael Noonan told state broadcaster RTE.
"Whether we would go further (on spending cuts) as a matter of policy to inspire greater confidence both domestically and in the international community is a matter of judgment."
(Additional reporting by Annika Breidthardt and Jan Strupczewski; Writing by Mike Peacock; Editing by Hugh Lawson)
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