Budapest Post

Cum Deo pro Patria et Libertate
Budapest, Europe and world news

German court says yes to recovery fund — but maybe not to much else

German court says yes to recovery fund — but maybe not to much else

Constitutional court cleared the way for the EU to issue joint debt to finance its recovery fund , but it did not give a ringing endorsement.
Just when it looked like the tide might be turning in favor of the EU pooling its resources to stave off crises or fund one-off super-projects, it looks like Germany might be putting the brakes on again.

While the country's constitutional court on Tuesday cleared the way for the bloc to issue joint debt to finance its €750 billion recovery fund — the unprecedented scheme governments in the EU established as they struggled with the costs of the pandemic in 2020 — it was far from a ringing endorsement for anything similar any time soon.

That common debt issuance, the first of its kind in the EU, was legitimate, the court ruled, because it was temporary, exceptional, linked to a specific purpose and not larger than the overall EU budget. That will draw sighs of relief from Brussels and other countries which had staked much political capital on the ambitious package.

But there was a big caveat. "It would be manifestly impermissible for the European Union to borrow on capital markets to provide general financing for its budget," the court said.

As the EU battles rising inflation and a sluggish economy and is faced with questions over how to help rebuild Ukraine, the question of how much governments should spend to boost growth has come under renewed focus.

The recovery fund, known as NextGenerationEU and agreed in July 2020 at the same time as the bloc's €1 trillion seven-year budget, was seen then as a one-off. But its success has led to calls for other projects along similar lines, such as to help fund Kyiv's reconstruction efforts.

That looks to be unlikely after the German court's ruling, analysts said.

"This is not a positive sign for future fiscal integration," said Thu Nguyen, of the Jacques Delors Centre. "The court seems extremely skeptical, essentially arguing all along that the program is legally very problematic, only to then conclude that it will not block it."

The recovery fund allows the European Commission to raise money on capital markets to help finance jointly agreed reforms and investment plans of member countries, partly as grants and partly as loans.

It was seen as breaking a long-standing EU taboo about the pooling of debt. But it raised fears, particularly in richer countries like Germany, that they would be liable for the bill if other governments defaulted.

It's this that alarmed judges in Germany.

"The court raised serious doubts about whether the joint issuance to finance the fund is in line with the treaty of the functioning of the EU," said Holger Schmieding, chief economist at Berenberg Bank. "The German court — once again — emphasized German limits for EU fiscal integration.”

The ruling leaves "the question open" of whether the court would approve the participation in further joint EU debt issuance in the future, he added.

Plaintiffs had sought to stop the joint debt issuance, arguing that it was illegal and contrary to the wording of Article 311 of the Treaty of the Functioning of the European Union to finance expenditures of the bloc's budget by issuing debt.

They also said the program implied incalculable liability risks for Germany's federal budget, meaning that the government should never have agreed to the country's participation.

The German government had approved the scheme. The court in Karlsruhe ruled that it did not present an “obvious infringement” on rules governing European integration. “Also, it does not impair the overall budgetary responsibility of the German Bundestag.”

The decision is "far from a blank cheque" for future initiatives, said International Monetary Fund legal counsel Sebastian Grund.

There might still be some wriggle room, however, with analysts pointing out that at one time the German government's approval of the recovery fund in the first place would have been unthinkable.

The decision opens the door to some joint debt issuance on other tailored spending projects, according to Friedrich Heinemann, of the ZEW economic research group.

"With this tailwind from Karlsruhe, the pressure from Brussels on the federal government will now increase to clear the way for debt financing of new EU programs, he said.
AI Disclaimer: An advanced artificial intelligence (AI) system generated the content of this page on its own. This innovative technology conducts extensive research from a variety of reliable sources, performs rigorous fact-checking and verification, cleans up and balances biased or manipulated content, and presents a minimal factual summary that is just enough yet essential for you to function as an informed and educated citizen. Please keep in mind, however, that this system is an evolving technology, and as a result, the article may contain accidental inaccuracies or errors. We urge you to help us improve our site by reporting any inaccuracies you find using the "Contact Us" link at the bottom of this page. Your helpful feedback helps us improve our system and deliver more precise content. When you find an article of interest here, please look for the full and extensive coverage of this topic in traditional news sources, as they are written by professional journalists that we try to support, not replace. We appreciate your understanding and assistance.
Newsletter

Related Articles

0:00
0:00
Close
Polish MEP: “Dear Leftists - China is laughing at you, Russia is laughing, India is laughing”
Western Europe Records Hottest June on Record
BRICS Expands Membership with Indonesia and Ten New Partner Countries
Elon Musk Founds a Party Following a Poll on X: "You Wanted It – You Got It!"
China’s Central Bank Consults European Peers on Low-Rate Strategies
France Requests Airlines to Cut Flights at Paris Airports Amid Planned Air Traffic Controller Strike
Poland Implements Border Checks Amid Growing Migration Tensions
Emirates Airline Expands Market Share with New $20 Million Campaign
Amazon Reaches Milestone with Deployment of One Millionth Robot
Yulia Putintseva Calls for Spectator Ejection at Wimbledon Over Safety Concerns
House Oversight Committee Subpoenas Former Jill Biden Aide Amid Investigation into Alleged Concealment of President Biden's Cognitive Health
Amazon Reaches Major Automation Milestone with Over One Million Robots
Extreme Heat Wave Sweeps Across Europe, Hitting Record Temperatures
Meta Announces Formation of Ambitious AI Unit, Meta Superintelligence Labs
Robots Compete in Football Tournament in China Amid Injuries
China Unveils Miniature Insect-Like Surveillance Drone
Marc Marquez Claims Victory at Dutch Grand Prix Amidst Family Misfortune
Germany Votes to Suspend Family Reunification for Asylum Seekers
Budapest Pride Parade Draws 200,000 Participants Amid Government Ban
Southern Europe Experiences Extreme Heat
Xiaomi's YU7 SUV Launch Garners Record Pre-Orders Amid Market Challenges
Jeff Bezos and Lauren Sanchez's Lavish Wedding in Venice
Russia Launches Largest Air Assault on Ukraine Since Invasion
Massive Anti-Government Protests Erupt in Belgrade
Iran Executes Alleged Israeli Spies and Arrests Hundreds Amid Post-War Crackdown
Hungary's Prime Minister Criticizes NATO's Role in Ukraine
EU TO HUNGARY: LET THEM PRIDE OR PREP FOR SHADE. ORBÁN TO EU: STAY IN YOUR LANE AND FIX YOUR OWN MESS.
Hungarian Scientist to Conduct 30 Research Experiments on the International Space Station
NATO Members Agree to 5% Defense Spending Target by 2035
NATO Leaders Endorse Plan for Increased Defence Spending
U.S. Crude Oil Prices Drop Below $65 Amid Market Volatility
International Astronaut Team Launched to Space Station
Macron and Merz: Europe must arm itself in an unstable world
Germany and Italy Under Pressure to Repatriate $245bn of Gold from US Vaults
Iran Intensifies Crackdown on Alleged Mossad Operatives After Sabotage Claims
Trump Praises Iran’s ‘Very Weak’ Response After U.S. Strikes and Presses Israel to Pursue Peace
Oil Prices Set to Surge After US Strikes Iran
BA and Singapore Airlines Cancel Dubai Flights Amid Middle East Tensions
Trump Faces Backlash from MAGA Base Over Iran Strikes
Meta Bets $14 B on Alexandr Wang to Drive AI Ambitions
FedEx Founder Fred Smith, ‘Heart and Soul’ of the Company, Dies at 80
Chinese Factories Shift Away from U.S. Amid Trump‑Era Tariffs
Pimco Seizes Opportunity in Japan’s Dislocated Bond Market
Labubu Doll Drives Pop Mart to Status as China’s Most Valuable Toy Maker
Global Coal Demand Defies Paris Accord Goals
United States Conducts Precision Strikes on Iran’s Nuclear Sites
US strikes Iran nuclear sites, Trump says
Telegram Founder: I Will Leave My Fortune to Over 100 of My Children
16 Billion Login Credentials Leaked in Unprecedented Cybersecurity Breach
Senate hearing on who was 'really running' Biden White House kicks off
×