Corona Reconstruction Fund: Why Karlsruhe is looking into EU debt

A €750 billion EU aid package is set to help countries deal with the consequences of the pandemic. To this end, the debts are assumed together. The Federal Constitutional Court will now decide whether this is permissible.

It was the time when there were hardly any Corona vaccinations and many EU countries were in lockdown. The EU was therefore grappling with the problem of how to mitigate the consequences of the pandemic.

The response of the heads of state and government in the summer of 2020: An aid package worth 750 billion euros, the so-called Corona Reconstruction Fund, is intended to revive the economy of the member countries in this exceptional situation. For the first time, the EU can borrow to finance aid. The EU Commission is therefore borrowing on the capital market for a limited period until 2026.

Has the EU gone too far?

In Germany, this decision is now being examined by the Federal Constitutional Court. “The EU as an institution is not allowed to raise its own funds on the financial market, but can only spend what member states allocate to it,” argued one of the two plaintiffs, entrepreneur and former BDI head Heinrich Weiss at the hearing. in Karlsruhe.

The second plaintiff, Bernd Lucke, co-founder of the AfD and professor of economics in Hamburg, has a group of more than 2,200 citizens behind him. He also believes that the EU should not have taken any decisions because it exceeded its competences. The consequence would be that the German Bundestag would not have had to give its assent to the decision of the EU Council. The appellants therefore challenged that decision before the Federal Constitutional Court.

Concern over ‘debt union’

Politically, the main reason behind the legal dispute is concern about the creeping entry into a so-called debt union. The fact that the EU is jointly borrowing means that Germany could be held liable to other member states in an emergency if they don’t pay back the aid money on time.

The plaintiffs therefore believe that Germany is taking incalculable liability risks with the fund. Furthermore, the decision would undermine the Bundestag’s sovereignty over its own finances and thus violate EU law.

However, Germany should not be immediately liable if a member state fails to repay. First of all, the EU Commission would intervene. Furthermore, if it were unable to pay, Germany would not be fully liable, but only partially.

The EU treaties leave loans open

From a legal point of view, it is so difficult to answer the question of whether the EU is allowed to go into debt, especially since the European treaties say little about it. There is neither a rule that expressly allows the EU to borrow nor one that expressly prohibits it.

However, the possibility is envisaged for Member States to be able to take special measures in particularly difficult situations to show mutual solidarity.

The federal government refers to this and assures that the Corona reconstruction fund was an exception in the pandemic. The decision therefore does not pave the way for a debt union, because it only allows for joint debt to be taken on specifically for this crisis and no further.

First funds already paid

It remains to be seen whether the Federal Constitutional Court will follow this position. In an urgent decision in April, the Federal Constitutional Court did not stop the Bundestag’s yes to the EU decision. The Corona Reconstruction Fund has come into effect. All EU member states had previously agreed.

Thus began the aid program. The EU Commission has already approved many investment plans of the Member States and, according to its own statements, has already disbursed over 170 billion euros.