Top German court dismisses challenges to EU crisis fund

Germany’s highest court has dismissed legal challenges to the European Union’s pandemic crisis fund, potentially setting a precedent for further backing of Brussels-issued debt from the union’s largest member state.

In a ruling on Tuesday the constitutional court in Karlsruhe dismissed two challenges to the temporary Next Generation EU (NGEU) pandemic assistance package.

The plaintiffs argued that the programme violated Germany’s budgetary sovereignty but, in a six-to-one ruling, the court ruled said a Bundestag vote in favour of participation meant this was not the case.

Instead the judges said German participation was lawful if the funds were “strictly earmarked from the outset”.

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The €750 billion fund is made up of loans and grants to member states to help their regions and businesses recover from the pandemic emergency.

The fund has already been activated, after Karlsruhe granted its provisional permission in April 2021. With a €65 billion pay-in, Germany is the largest contributor; it has received about €25 billion out from the fund which, for the first time, allows Brussels issue debt on behalf of EU member states.

The ruling is the latest round in a series of legal challenges at the federal constitutional court, often by the same plaintiffs, on the issue of shared EU debt liability.

Starting with the euro crisis bailout programmes in 2010 and continuing through bond-buying by the European Central Bank (ECB), these critics fear their country is sliding into a ‘schuldenunion’, a transformed transfer – or debt union – EU where German taxpayers would be liable for others’ debts.

Two years ago, in its most far-reaching ruling to date, the constitutional court suggested the European Central Bank and Court of Justice of the EU (CJEU) had exceeded their mandates in the controversial PSPP bond-buying programme.

Tuesday’s decision was milder, in the Karlsruhe “yes-but” ruling tradition. It notes that the Next Generation EU programme falls under article 122 of the EU treaty. This allows emergency funding in the case of natural disasters and, the judges said, would be an empty promise without the ability to raise emergency funds.

In oral hearings last July, a European Commission expert insisted the NGEU programme was temporary and limited in scope. A federal finance ministry official insisted it was “not a blueprint for future programmes”.

“This assessment was also the basis for Germany’s consent,” said the court in Tuesday’s ruling. “In this respect, it was not a question of entering into a transfer union.”

One justice dissented from the ruling: Peter Müller, a former state leader in ex-chancellor Angela Merkel’s Christian Democratic Union.

He said the NGEU plan – including provisions to boost regional digitalisation or climate neutrality measures for companies – was a “general economic stimulus programme” and that the link to the pandemic was “not apparent”.

The ruling has considerable political consequences for the EU. Dr Merkel agreed to the NGEU programme, insisting that Brussels-raised debt was a one-off; her successor Olaf Scholz has signalled flexibility.

“This decision from Karlsruhe strengthens those who want to finance more European tasks through debt in the future,” said Prof Friedrich Heinemann of Germany’s ZEW economics institute. “The pressure from Brussels on the federal government will now increase to clear the way for debt financing of new EU programmes.”