from Bernd Lucke, main complainant (excerpt from the members' letter of August 1, 2022)

As a reminder: To finance the so-called Corona Recovery Fund, the EU was authorized by the member states to incur debts amounting to 750 billion euros (in 2018 prices, today it is already 807 billion euros). This was done through the so-called Own Resources Decision of the European Council (i.e. the heads of state and government) on December 14, 2020. This stipulates that the credit debts will be repaid from the Union's own resources budget over the next 38 years. However, for the period starting in 2028, when the repayments are supposed to take place, there is still no such budget. Therefore, it is planned, similar to the Eurobonds that have always been rebuffed so far, that the debts will be jointly guaranteed by the member states. The decision enshrined that the EU Commission can autonomously call for contributions from the member states for the annual interest and repayment payments and can rely on the remaining solvent member states in the case of a payment default by one or more EU member states. Therefore, the Federal Republic of Germany is not only liable for its own share of the common debt but, under unfavorable circumstances, up to the total of all outstanding interest and repayment obligations.

Liability of Germany for the total debts - a realistic scenario?

Could such a thing happen? Not only the EU debt crisis from ten years ago should be a warning reminder. Just recently, we also experienced that Poland refuses gas deliveries from Germany or makes them conditional on the previous fulfillment of Polish reparations claims from the Second World War. What if Poland has the same idea regarding the repayment of EU debts? It could go something like this: Poland does not make the required debt service for the EU debts but demands that Germany assumes the Polish share as part of the reparations. The EU Commission would then have to claim the outstanding Polish share from all other EU states, but all other member states refuse to comply with this request because they say this is a specific German-Polish problem. Could happen, right? Perhaps even other countries will join Poland's actions - Greece, for example, has also been heard with reparations claims during the Euro crisis. And since the German troops did not only cause terrible disasters in Poland, fundamentally all Eastern European countries could follow in Poland's footsteps and declare the reparations agreements concluded with Germany by their former communist governments invalid because the communist governments did not have a democratic mandate.Thus, from the common liability, old wounds would reopen and lead to new conflicts. The EU would incur serious damage. That is also why we reject a common liability. It is pro-European to do so! 

Oral hearing

In April 2021, we tried in an expedited procedure to prevent the Federal President from signing the German approval law for this common debt. Unfortunately, the Federal Constitutional Court rejected our request for a temporary injunction at that time. However, the decision on the main issue is still pending. Last week, the two-day oral hearing on this took place in Karlsruhe, where we were represented by our attorney, Prof. Dr. Hans-Detlef Horn. I would like to provide an overview of some essential aspects discussed for those who could not attend in person. Since the matter is complicated, a longer text follows now. Feel free to jump to the end of the email if it becomes too detailed for you at first: The Federal Constitutional Court examines two things: 1. whether our constitutional complaint is admissible, 2. whether it is justified.

1. The admissibility of the constitutional complaint is questioned because German citizens do not have the right to sue directly against legal acts of the EU. However, we are not doing that; rather, we are turning against the German approval law for the EU Own Resources Decision. We refer to a legal position that has long been recognized in the jurisdiction of the Federal Constitutional Court: We can claim that we are being violated in our "right to democracy," guaranteed in the Basic Law, because the EU has passed a resolution for which it has no competence under the EU treaties. In other words: The EU has incurred debts even though there is no authorization for debt accumulation anywhere in the (democratically approved!) EU treaties. Here, the opposing side argues that the German Bundestag approved the EU debt. Since this approval was based on the democratic election of the Bundestag and a democratic vote in the Bundestag, our right to democracy has not been affected. Even if the assumption of EU debts were unlawful, we could not sue against it because there is indeed a fundamental right to democracy in the Basic Law, but not a fundamental right to legality. The argument comes down to the fact that the Bundestag is not bound by what has been previously agreed in the EU treaties and has been democratically decided by the German legislature (and all other national parliaments). Therefore, we counter that the Bundestag violates our right to democracy because it goes beyond the democratically endorsed framework of European integration by approving the Union's debt. This framework can only be extended through a proper treaty amendment, not through a law that approves an EU resolution for the enforcement of the applicable treaties, even if this happens in fact with a two-thirds majority.2. Regarding the justification of the constitutional complaint the central question is whether - and under what circumstances - the EU is allowed to incur debt under the applicable treaty law. The discussion on this is very complex, and I can only outline it in general terms:a. The EU budget is financed from own resources Article 311 of the Treaty on the Functioning of the European Union (TFEU) states verbatim: “The budget shall be financed entirely from own resources without prejudice to other revenue.” This has traditionally been understood as a prohibition of debt for the EU, because loan funds are foreign resources, not own resources. (The other revenues are traditionally small revenues of the EU, e.g., from cartel fines or certain taxes paid by EU employees.) The EU Commission and the federal government now argue that Article 311 TFEU can at best be understood as a prohibition of debt for the own resources budget of the Union. For activities of the EU outside this budget (i.e., e.g., for earmarked side or shadow budgets), there is no prohibition of debt. For a shadow budget, the EU could incur debts and consequently declare the revenues from the borrowing as “other revenues” of the EU. We consider this a unlawful circumvention of the debt prohibition because it could completely undermine the limitation on the Union to financing through own resources established in Article 311 TFEU.

b. Prohibition of debt

It is indeed true that there is no explicit prohibition of debt in the treaties for outside the regular budget. However, we point out that the EU needs an explicit authorization to incur debts. The EU is constructed according to the principle of “limited individual empowerment.” This principle states that the EU is not allowed to do anything that is not explicitly prohibited. Rather, it is only allowed to do what is explicitly permitted. We dispute that any permission for debt accumulation exists outside of the budget. The opposing side claims that an implicit (instead of an explicit) permission to incur debts is sufficient. It sees such an implicit permission in Article 122 TFEU, which allows the EU to adopt “appropriate measures” in response to “serious difficulties in the supply of certain goods.” If such measures can be adopted, then this would implicitly also be connected with the competence to decide on their financing, and if there are not enough own resources, then it would also have to be allowed to decide on credit financing. We consider this to be an extremely shaky legal argument that no one has ever thought of before, but we are unfortunately not sure whether the majority of the Federal Constitutional Court judges see it that way. We also dispute that serious difficulties in the supply of goods have arisen due to the Corona crisis and clarify that this concerns a general economic policy of the EU, and we also point out that the funds from the Corona Recovery Fund have long been used to combat the energy crisis that arose from the Russia-Ukraine war.

c. One-time debt incurrence or permanent debt union?

The opposing side claims that a permanent debt union is not being established, but only a one-time credit financing is taking place in an exceptional crisis situation. A permanent debt policy of the EU would be illegal under applicable law and is unimaginable without a treaty amendment. We counter that the EU has always declared its controversial measures as one-time and time-limited, only to later digest them. This is the case with the Euro rescue policy, which became the permanent European Stability Mechanism (ESM), as well as with the purchase of government bonds by the European Central Bank (ECB), which was initially supposed to be limited both in time and volume but has now been elevated to a permanent instrument of the ECB. If one-time credit financing were lawful, in our view the EU would also make use of it a second, third, and fourth time when it sees the need. And it will see the need - at the latest in the next crisis. Or if the member states prefer to defer the debts into the future rather than repay them. The path to a permanent debt union is foreseen if the Constitutional Court does not obstruct it now.

d. Liability risks

A significant part of the discussion also concerned whether the liability risks that the Federal Republic of Germany is exposed to lead to an unreasonable restriction of the budgetary design scope of the German Bundestag. Almost all economic experts testified that they considered the dangers manageable because the likelihood of a payment default by all other EU states is very low and the payment obligations of Germany in this case would be spread over many years. However, the Federal Court of Audit viewed this completely differently, warning in a truly fiery plea about the dangers associated with common debt:

Assessment of the Federal Court of Audit 

The reason the assessment of the Federal Court of Audit was so different is that the federal government and most experts view the risks of the Corona Recovery Fund in isolation. The Federal Court of Audit expressly warned against this approach - and rightly so. It pointed out that in the event of payment default by other member states, the Federal Republic of Germany is not only liable for their payment obligations from the 750 billion euro loan but that there is also a danger that it would have to fulfill all other guarantees that Germany has given over time within the framework of the Euro rescue or the Corona crisis, known to experts under abbreviations such as EFSF, ESM, or SURE.
The Federal Court of Audit criticized that politics always viewed the risks only separately for each measure and then considered them manageable. In reality, however, the risks are highly correlated, and therefore the budgetary autonomy of the German Bundestag is seriously threatened. This is exactly our view.

Outlook

The partners of the EU treaties and their national peoples did not want a debt union. Debts of the EU are ultimately debts of the nation-states, and since the debts of the nation-states are to remain limited (according to the Maastricht Treaty no more than 60% of GDP), it was not intended that this debt limitation could be circumvented by the EU incurring debt: "no state debt policy through the European side!" Therefore, the clear mandate that the EU budget must be financed entirely from own resources. However, today’s governments find the EU debt limits cumbersome. Therefore, they seek vaguely formulated, interpretable passages in the treaties from which one could infer an implicit permission to incur credit outside of the EU budget through daring-creative interpretation. To do this, they employ legal high-tech constructions and have them approved in parliament in order to bring about an implicit treaty amendment in the formal guise of a sanctioned Own Resources Decision. That this undermines the democratic trust of citizens in the rule of law of the EU is accepted as collateral damage. The Federal Constitutional Court now must decide whether it wants to put a stop to such games (which are not the first time played). A first necessary step would be to involve the European Court of Justice. This requires courage - we have seen how harshly the court has been criticized for its PSPP ruling. But not only that: In the long run, a confrontation with politics could lead to parties paying more attention to the political reliability of the judges when electing them. This would cause the Federal Constitutional Court to gradually lose its independence. If the Federal Constitutional Court were to simply approve such cross-border treaty interpretations, then we would ultimately not need a Federal Constitutional Court anymore - at least in the European context. Then there would be no legal protection for German citizens in democracy in these matters anymore. Then the European treaties would not be the framework of integration (and solidarity) in Europe but rather the pliable mass of state and government heads delivered to political whims. The Federal Constitutional Court has announced that it will decide on our constitutional complaint still this year.