Chancellor Angela Merkel’s policy for saving the euro was vindicated as Germany’s constitutional court rejected motions by bailout critics to stop Europe’s permanent financial-rescue fund.

“It’s a slap in the face for the opposition and the litigants alike as the court threw out all the lawsuits,” Michael Meister, the deputy whip in parliament for Merkel’s Christian Democratic Union, said in an interview after the Federal Constitutional Court in Karlsruhe ruled on Wednesday.

The court’s decision clearing obstacles for Germany to take part in the European Stability Mechanism caps German liabilities under the ESM and upholds German lawmakers’ influence over aid distributions from the fund, Meister said. “This decision reflects our political will,” he said.

With an extension of Greece’s bailout still undecided and Spain holding out on asking for a sovereign rescue, the verdict hands Merkel ammunition against bailout opponents in Germany, including in her ruling coalition.

“This is a good day for Germany and it is a good day for Europe,” Merkel said in a speech to lower-house lawmakers in Berlin. “Today, Germany once again sends a strong signal to Europe and beyond: Germany is resolutely fulfilling its responsibilities as the biggest economy and trusted partner in Europe.”

Stocks (SXXP) and Spanish and Italian bonds rallied after the ruling, while the euro rose to a four-month high. The single currency climbed 0.5 percent to $1.2920 at 12:57 p.m. in Berlin. The Stoxx Europe 600 Index rose 0.2 percent.

The ESM’s governing board, with one representative from each of the 17 euro countries, will hold its first meeting on Oct. 8, Luxembourg Prime Minister Jean-Claude Juncker said. Juncker is due to chair a meeting of euro finance ministers the same day.

“The way is clear for ratification” by Germany of the ESM and the Merkel-inspired fiscal pact for balancing budgets across Europe, Economy Minister Philipp Roesler told reporters in Berlin. German President Joachim Gauck has withheld signing the required laws pending Wednesday’s ruling.

The ruling is “another big step towards defusing the euro crisis,” Holger Schmieding, chief economist at Berenberg Bank, said in a note to clients. While the debt crisis isn’t over yet, a “gradual return of confidence could enable the German economy to rebound by the end of the year from its current stagnation and the euro zone to star expanding gradually in early 2013.”

[Bloomberg]