Federal Constitutional Court allows Corona Recovery Fund: Comment by Bernd Lucke
Dec 7, 2022
Comment from Prof. Bernd Lucke, main complainant
With today's ruling, the Federal Constitutional Court has rejected our constitutional complaint against the financing of the "Corona Recovery Fund" through jointly liable EU debts amounting to 750 billion euros.
In short and simplified, the ruling states the following:
The budget of the European Union is subject to a general prohibition on borrowing. The expenditures made from the EU budget must be financed by the European Union's own resources. External financing through borrowing is not permitted.
(So far, so good!)There is also a summary as a press release of the ruling and a very worthwhile dissenting opinion from Judge Peter Müller, who sharply criticizes the majority ruling of the 2nd Senate. This dissenting opinion can be found on the last pages of the ruling
However, there is a "general" prohibition on borrowing in the EU, but not an "absolute" one. Therefore, it may be permissible for the EU to incur debts exceptionally, provided that the funds borrowed are spent with a clear earmarking, serve only programs outside the budget, and that the debts are clearly temporally and volumetrically limited.
(This is not good. These are elastic conditions that will allow the EU to continue accumulating debt through the back door).
No more debts may be incurred than the EU has in its budget as own resources.
(Very bad. This means that the EU can double its spending in the future and finance half of that spending through debt in shadow budgets.)
In the case of the Corona Recovery Fund, the EU has incurred more than double the debts in two consecutive budget years than it has in own resources, but this is still lawful because it does not depend on the annual budget plan but on the seven-year financial planning. And calculated over seven years, the Corona debts are still lower than the EU's own resources.
(Clearly, they were looking for ways to weaken their own criteria.)
Every future incurring of debt must be approved by the Bundestag.
(At least!)
No permanent mechanism may be established whereby the Federal Republic of Germany is liable for the debts of other countries.
(Good, but that is already stated in the EU Treaty (Art. 125)).
Whether the Corona Recovery Fund meets the criteria set by the Federal Constitutional Court for permissible debt financing in an exceptional situation (pandemic) is doubtful for several reasons, including that expenditures for climate protection have nothing to do with the consequences of the pandemic, that ongoing EU programs that already existed before the pandemic are funded from it, and that the distribution key for the funds is based on gross domestic product and unemployment rates before the pandemic. Nevertheless, it is not "obvious" that this does not relate to a program for mitigating the consequences of the pandemic.
(One wonders when anything is ever obvious to the Federal Constitutional Court.)
While it cannot be ruled out that the general EU prohibition on borrowing is being circumvented by the incurred debts, it is not obvious.
It cannot be ruled out either that the Recovery Fund (and specifically the lost grants of 390 billion euros) circumvent the no-bailout clause from Article 125 TFEU, but this is also not obvious.
(No comment)
The liability of Germany for possibly defaulting other member countries embedded in EU debt does not raise concerns because this liability is only temporary. Ultimately, the delinquent member state must pay back its debts itself.
(That is true – on paper. But what if the delinquent member state simply does not do so?)
Karlsruhe's essence:
Our constitutional complaint is admissible, but unfounded.
The essence of the dissenting opinion by Peter Müller:
In light of the serious doubts about the legality of EU borrowing expressed in the ruling, there should have at least been a reference to the Court of Justice of the European Union.
(Very true! Unfortunately, little fruitful is to be expected from the CJEU).
The (ineffective) attempt of the court to set limits for future EU borrowing means that the Federal Constitutional Court “accepts the start of a permanent and fundamental change of the European financial architecture without the necessary primary legal basis”
(That is a public slap in the face for the judge colleagues!)
The ruling poses the risk that the competence control of EU law will be substantially emptied.
(That is not a slap in the face. That is a strike with a cane).
Our conclusion:
Karlsruhe has ducked away. The borrowing for the Corona Recovery Fund NGEU could no longer be changed, so it was approved despite the clear doubts expressed by the judges regarding its contractual compliance. But instead of at least driving in stakes to prevent or limit the next EU debt initiatives, the Federal Constitutional Court has left the crucial legal questions open: If it is questionable whether the Corona Recovery Fund meets the requirements for lawful borrowing, how will this be determined for future debt-financed programs? And can the EU launch many "questionable" programs and always get away with it?
It seems that the next constitutional complaint is almost inevitable.
Press release from the BVerfG: https://www.bundesverfassungsgericht.de/SharedDocs/Pressemitteilungen/DE/2022/bvg22-103.html;jsessionid=00F6ED6B808518AE421EA5E5522FBCAC.2_cid507