By Michelle Martin and Ilona Wissenbach
KARLSRUHE, Germany (Reuters) - Germany's Constitutional Court confirmed on Tuesday the legality of the euro zone's bailout fund, upholding a preliminary ruling from the height of the debt crisis in 2012 that gave an initial green light to the European Stability Mechanism (ESM).
The court reiterated that the 700 billion euro ($975 billion) fund did not violate the rights of the Bundestag lower house of parliament to decide on budgetary matters as long as the lower house of parliament had sufficient oversight powers over the ESM.
"The result is clear: the constitutional complaint...is inadmissible and on top of that unfounded," said the president of the court, Andreas Vosskuhle, standing to read the verdict along with his red-robed colleagues in the courtroom.
"Despite the liabilities assumed, the budgetary autonomy of the German Bundestag is sufficiently safeguarded," he told the court in Karlsruhe in south-western Germany.
The court said measures had been taken to ensure Germany's liability to the ESM was limited to 190 billion euros, with any increase subject to approval or veto by the Bundestag.
The more than 35,000 plaintiffs included academics and lawmakers from Chancellor Angela Merkel's conservative bloc and the opposition, who argued that the ESM amounts to an illegal transfer of sovereignty from Berlin to Brussels.
The Constitutional Court has a history of delaying EU treaties to test their compatibility with German law, usually reaching the conclusion that parliament has to be consulted fully and taxpayers' liabilities must be limited.
STILL DOUBTS ON OMT
As expected, Vosskuhle did not make any direct comments on the legality of the European Central Bank's "unlimited" bond-buying scheme, the flagship emergency measure taken since the debt crisis began four years ago.
The German court took the unprecedented decision last month to defer a ruling on the ECB's Outright Monetary Transactions (OMT) program - which is credited with saving the euro zone - to the European Court of Justice in Strasbourg.
The ECJ is seen as less of a threat to the OMT, which was announced by ECB chief Mario Draghi in 2012 and helped to keep the euro zone together by promising potentially unlimited purchases of the sovereign bonds of member states.
The German court could still give its own verdict after an ECJ ruling, which is likely to take over a year. It has already said there was good reason to think the OMT exceeded the ECB's mandate and violated a ban on the ECB funding governments.
Christian Schulz, an economist at Berenberg bank, said it would have been a major surprise if the Constitutional Court had contradicted its own preliminary verdict from 2012.
"It's important that we have certainty about the legality of the ESM in the eyes of Karlsruhe because it is central to the financial stability architecture of the euro zone," he said.
But the court had "created much bigger trouble" with its negative comments on the OMT in February, "because without that, the ESM is simply too small - it is not big enough to defend countries like Spain and Italy", said Schulz.
Gunnar Beck, a Eurosceptic law expert at London University, said the ruling did not alter his view that the ECJ and German court "might compromise and limit the OMT while allowing the ECB to engage in quantitative easing on an unprecedented scale".
(Additional reporting by Norbert Demuth in Karsrluhe and Madeline Chambers, Sarah Marsh and Erik Kirschbaum in Berlin; Writing by Stephen Brown; Editing by Noah Barkin and Madeline Chambers)