Corona reconstruction fund: Why Karlsruhe is examining EU debt

An EU aid package of 750 billion euros is intended to help countries deal with the consequences of the pandemic. For this purpose, debts are taken on together. The Federal Constitutional Court will now decide whether this is permissible.

It was the time when there were hardly any vaccinations against Corona and many EU countries were in lockdown. The EU was therefore wrestling 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 boost the economy of the member countries again in this exceptional situation. For the first time, the EU is allowed to take on debt to finance the aid. The EU Commission is therefore taking out loans on the capital market for a limited period until 2026.

Did the EU go too far?

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

The second plaintiff, AfD co-founder and Hamburg economics professor Bernd Lucke, has a group of more than 2,200 citizens gathered behind him. He also thinks that the EU should not have made the decision at all because it exceeded its competence. The consequence would be that the German Bundestag should not have given its consent to the EU Council decision. The plaintiffs are therefore challenging this decision before the Federal Constitutional Court.

Concern about “debt union”

Politically, the main reason behind the legal dispute is concern about creeping entry into a so-called debt union. The fact that the EU is jointly running up debts means that Germany could be liable for other member states in an emergency if they do not pay back the aid money on time.

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

However, Germany would not have to be liable immediately if a member state fails to make repayments. First of all, the EU Commission would step in. Furthermore, if she cannot pay, Germany would not be fully liable, but only partially.

EU treaties leave borrowing open

From a legal point of view, the question of whether the EU is allowed to take on debt is so difficult to answer, mainly because the European treaties say little about it. There is neither a norm that expressly allows the EU to take on debt nor one that specifically prohibits it.

However, the possibility is provided for the Member States to be able to take special measures in particularly difficult situations in order to show solidarity with one another.

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 to a debt union, because it only enables joint debt to be incurred specifically for this crisis and not beyond.

First funds already paid out

Whether the Federal Constitutional Court will follow this stance remains to be seen. 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 was able to come into force. All EU member states had previously agreed.

So the aid program has started. The EU Commission has already approved many investment plans from member states and, according to its own statements, has already paid out more than 170 billion euros.