| 29 May 2024, Wednesday |

German court dismisses challenge to 750 bln euro EU recovery fund

The European Union’s 750 billion euro ($786 billion) recovery fund, which saw the EU take on shared debt to help member states overcome the COVID-19 crisis, was the subject of a legal complaint that Germany’s constitutional court dismissed on Tuesday.

The decision will contribute to the discussion of whether the EU may assume collective debt for future crises at a time when the conflict in the Ukraine and the ensuing energy standoff with Russia are pushing member states to propose expensive relief initiatives.

ZEW economist Friedrich Heinemann said the decision delivered a boost to those who support such an approach, adding: “Pressure from Brussels will now grow on the (German) government to clear the way for debt financing of new EU programmes.”

German Finance Minister Christian Lindner welcomed the ruling but said some aspects of the decision would have to be closely analyzed by the government.

“For example, it was underlined that joint borrowing in Europe has only an exceptional character and is therefore not available for the general financing of political tasks,” said Lindner, who is head of the liberal Free Democratic Party.

The recovery fund, dubbed Next Generation EU, allowed the European Commission to raise up to 750 billion euros on capital markets and pass on the money to member states through payments linked to jointly agreed reform and investment plans, partly as grants and partly as loans.

The funds are to be repaid from the EU budget over the coming decades, with Germany shouldering by far the biggest share of any member state.

Tuesday’s ruling rejected two constitutional complaints against legislation passed by Germany’s Bundestag (lower house of parliament) in March 2021 to ratify the massive funding programme.

The eurosceptic Alternative for Germany (AfD) co-founder Bernd Lucke and businessman Heinrich Weiss, who previously led the German industry lobby organization BDI, filed the accusations after the AfD’s rightward shift.

The court determined that neither the ratification act nor its failure to “impair the overall budgetary obligation of the Bundestag” had infringed their right to democratic self-determination.

Lucke expressed displeasure with the decision, but said that the court’s emphasis on the EU’s lack of a broad power to assume shared debt was a good thing.

  • Reuters