Euro Zone News

Germany’s highest court blocks ratification of EU recovery fund

Germany’s highest court has stopped a law ratifying the EU’s post-pandemic recovery fund, pending an urgent appeal against the legislation by a group of German Eurosceptics.

Under plans for the €750bn recovery fund, agreed by the EU last year, Brussels will gain unprecedented powers to borrow hundreds of billions on the markets and hand it out as budgetary support to member states hit by the coronavirus pandemic.

For the recovery fund to come into force, each of the EU’s national parliaments must ratify the EU’s “own resources” decision. The Bundestag did so on Thursday, with 478 of 645 lawmakers supporting ratification.

The law was backed by MPs from Chancellor Angela Merkel’s CDU/CSU bloc, the centre-left Social Democrats, and members of the opposition Greens and Free Democrats. It was also passed by the Bundesrat, the upper house of parliament.

The legislation was due to be signed into law by the German president, Frank-Walter Steinmeier. But on Friday the German constitutional court said its second senate — the court consists of two “senates”, each with eight justices — had stopped the ratification process. It said it must first rule on a motion for an interim injunction on the law.

The motion was brought by a group called Bündnis Bürgerwille, or the Citizen’s Will Alliance. On its website it said that EU treaties do not allow the bloc to take on debt.

“That didn’t prevent the European Council from passing an ‘own resources’ resolution which allows the EU to raise debt on capital markets for the first time,” it said.

Speaking to the Financial Times, Bernd Lucke, a Eurosceptic who was one of the founders of the rightwing Alternative for Germany party and is now an economics professor at Hamburg University, said he was “relieved” by the court’s ruling. He said he did not oppose the recovery fund per se, but argued that the way it was being financed “is not in compliance with EU treaties”. 

The own resources decision could, he said, “lead to EU fiscal union”, which would “violate the German constitution by limiting the budgetary powers of the Bundestag”.

It is unclear how serious a hurdle the constitutional court’s move will turn out to be. “Experience suggests that they are quick to make a fuss but afraid to do anything that has actual operational consequences,” said Lucas Guttenberg, deputy director of the Jacques Delors Centre.

“I would expect some drama and a few weeks’ delay. But we can’t completely exclude that this time is different,” he added.

Officials privately noted that there were similar legal challenges in 2012 to the eurozone’s bailout fund, the European Stability Mechanism, which had slowed down the creation of the ESM but failed to stop it. 

Bündnis Bürgerwille, which claims it is backed by 2,281 citizens, said it would contest the ratification of the own resources law before it was signed by Steinmeier. “The EU is not entitled to take on debt before Germany has ratified it,” the group said.

Lucke, one of the leading figures behind the organisation, and his allies won a sensational victory at the German constitutional court last year that sent shockwaves through Europe’s political and economic establishment. In response to a motion from Lucke, the court, based in the west German city of Karlsruhe, ruled that the ECB’s bond-buying programme may be ultra vires, or unconstitutional.

It ordered the German government and parliament to ensure that the ECB carried out a “proportionality assessment” of bond-buying to ensure its “economic and fiscal policy effects” did not outweigh other policy objectives.

The court said that the own resources legislation would be stopped until it had ruled on Lucke’s emergency motion.

Olaf Scholz, finance minister, had earlier expressed optimism that the own resources resolution would overcome the latest hurdles in its path and be passed into law. He said it “stands on a stable foundation in constitutional and European law” and “so we are well-positioned against the constitutional challenges that have been announced”. 

“The experience we’ve had with similar challenges make me confident that the own resources resolution can be ratified soon,” he added.

The European Commission said: “We note that the validity of the ‘own resources’ decision has not been put in question by the national court. The commission is confident that the German constitutional court will decide swiftly on the interim measures case. The EU objective remains to ensure the completion of the ratification process in all member states by the end of the second quarter of this year.”

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