"This is a good day for Germany, this is a good day for Europe," she said in a speech to parliament after the keenly anticipated ruling by the Federal Constitutional Court.

Merkel said all of Germany's institutions recognised the country's responsibilities in the eurozone debt crisis, which has posed the biggest threat to the single currency in its decade-long existence.

"Germany is once again sending a strong message to Europe and beyond," she said.

"Germany is decisively living up to its responsibilities as Europe's biggest economy and a reliable partner."

She said Europe still had a tough road ahead in the crisis but that Constitutional Court's decision was a positive step.

"We have not beaten the crisis. We will never overcome it with a drumroll. But I also say we have made initial progress toward solving the crisis," she said.

The 500-billion-euro ESM rescue fund was set to replace the temporary European Financial Stability Facility (EFSF) and should have been in place by July 1. But it needed Germany's share of the rescue money to function and had thus been held up pending the court ruling.