Did the German constitutional court prohibit the EU recovery fund?
On 26 March, the German constitutional court decided that, until it reaches a decision, the ‘Eigenmittelbeschluss-Ratifizierungsgesetz (ERatG)’, ie the law that provides for the German contribution to the EU’s recovery fund (Next generation EU, NGEU), cannot be signed by the German president. Despite a more than two-thirds majority in the Bundestag and a majority in the Bundesrat, Germany cannot therefore ratify the recovery fund. All eyes are now on Karlsruhe to see how the court will decide on the constitutional complaint brought forward.
What is the case about?
The plaintiffs see NGEU as a step towards fiscal union. More narrowly, there are three questions: (1) can ‘own resources’ be borrowed money under EU law (Art 311(3) as sufficient basis?); (2) does the creation of EU debt lead to a loss of budgetary autonomy of the Bundestag because Germany could be held liable for the entire €750 billion EU debt in case other countries do not honour their financial commitments? (3) is the way the resources are spent really only related to the COVID-19 emergency (for which the legal basis is Art 122)? A detailed discussion of the legal issues can be found here
What is at stake in the recent decision of the German constitutional court?
I do not think that the first point is an issue, and even lawyers seem to dismiss it. When it comes to budgetary autonomy, I find it hard to see how EU debt could end up as German debt. The EU own-resources regulation just increases the own resources ceiling by 0.6% (from around 1.4% of GNI to 2%). In principle, it is no different from the regular EU budget. Even in the extreme case of the EU breaking apart, EU debt would not be German debt. And Germany would, in any case, face massive budgetary risks in case of a breakup because of the economic havoc such a breakup would cause. If a single country leaves the EU, it will be forced to honour all its financial liabilities, as Brexit has shown. On the last point (3), the spending is aimed at boosting the economy in response to the natural catastrophe of the pandemic. How exactly you enact that spending is ultimately a political question.
But the deeper issue remains: NGEU is a creative response to a massive natural catastrophe – but the legal base for a permanent fiscal union, which the euro area ultimately needs, currently does not exist.