(AFP) EU leaders and analysts expressed relief and financial markets lifted on Wednesday after the German Constitutional Court cleared the way for the launch of a bailout fund and debt brake.

The ruling helped key parts of the EU debt crisis jigsaw puzzle fall into place after months of unremitting bad news and anguish, potentially anchoring the bloc on a stronger, more united base, said analysts.

However they cautioned it would not be all plain sailing from here with details needing to be nailed down and much haggling expected as member states make the painful compromises necessary to make the new system work.

The major breakthrough, they said, was that Germany's top court, in a landmark ruling watched around the world, rejected a raft of challenges against German ratification of the European Stability Mechanism (ESM) and the fiscal pact that will put a brake on accumulating more debt.

Borrowing costs falling

With the ESM in place and a beefed-up European Central Bank ready to intervene massively on the markets, the EU's crisis fighting machinery is taking shape, sparking a positive response on the markets where borrowing costs for weaker eurozone states continued to fall.

For 10-year benchmark government bonds in Spain, widely touted as the next bailout candidate, the return was around 5.60 percent Wednesday, compared with record unsustainable highs above 7.60 percent in July.

Significantly, Spanish Prime Minister Mariano Rajoy said he would wait and see about asking for a full bailout, after getting EU help for its stricken banks, keeping an eye on the nation's borrowing costs in the meantime.

"I still don't know the conditions nor whether it is necessary for Spain to request it," Rajoy told parliament. "We will see how the risk premium develops and the financing differentials ahead."

German court ruling "excellent news" for Italy

Italy also profited, raising funds at such sharply reduced rates to suggest that the tide may have turned after bailouts for Greece -- twice -- and Ireland and Portugal pushed the eurozone to the brink.

Italian Prime Minister Mario Monti described the German court ruling as "excellent news because it removes the last obstacle for the implementation" of the ESM and fiscal pact.

European Commission President Jose Manuel Barroso meanwhile called for the setting up of a single European banking regulator in the shape of the ECB, saying it was an essential response to the crisis and a step to greater union.

"Securing the stability of the euro is the most urgent challenge," Barroso told the European Parliament, and a new regulatory system was an "absolute priority today because it is the basis for better managing banking crises."

EU fighting to "win the battle against nationalists"

EU leaders agreed the new banking supervisor in June as part of a deal to allow the bloc's rescue funds to directly lend funds to stricken banks instead of passing aid through countries and so adding to their debt problems.

It is a first step towards a banking union and sits alongside moves towards the deeper economic and political integration needed to tame the debt crisis which has brought the eurozone economy to a standstill.

Barroso said the overall objective was to push the EU towards a "federation of nation states" which was required "to win the battle against nationalists, or extreme populists."