German Court Temporarily Holds Law on EU Covid Recovery Fund

Germany’s top court put the law authorizing the nation’s participation in the European Union’s 750 billion-euro ($884 billion) pandemic recovery fund on hold while it weighs an emergency request seeking to block the legislation.

The delay allows the judges to look into whether they need to issue a preliminary order in the case, the Federal Constitutional Court said in a statement. Such steps aren’t uncommon and an interim ruling could come within days.

The decision is the result of a case filed on Friday on behalf of political group Buendnis Buergerwille. As part of the suit, the group is seeking an interim ruling stopping the law from taking effect while the case is pending.

The EU’s massive 750-billion stimulus plan is the centerpiece of its economic response to the region’s pandemic-induced recession. It consists of desperately needed grants and loans that will be given out primarily to the worst-hit nations in order to help them rebound and finance their shift to a more green and digital economy.

The European Commission won’t be allowed to raise debt in capital markets to finance the EU’s recovery fund until the underlying legislation has been fully ratified in all 27 member states -- in Germany’s case that requires the signature of the president, Frank-Walter Steinmeier, which the court has blocked for now.

The funds don’t need to be raised until late in the end of the second quarter of this year. The underlying suit is likely to take years, but the court could permit the president to sign the law while adding caveats allowing Germany to ultimately withdraw in case of an adverse ruling.

The EU said that 16 countries have already signed off on the relief package and it is important that it be “rapidly approved by all member states, in particular in the light of the challenges due to the Covid-19 pandemic.”

Germany’s finance ministry declined to comment.

The lawsuit echoes many legal attacks that have objected to EU programs leading to tighter integration from the euro to many major finance measures.

While most cases have been dismissed, the court caused pandemonium last year when it seemed to rule in favor of a challenge to the European Central Bank’s asset buying program. The court, however, built a loophole into the decision, allowing the ECB to address the judges’ concerns.

Buendnis Buergerwille said the EU shouldn’t be allowed to issue debt to finance its pandemic recovery program. The bloc should instead rely on contributions from member states to raise the money. The current legislation creates the risk that Germany may have to shoulder the total amount in the end, according to the group.

“The EU is bound by its treaties to pass a balanced budget,“ Buendnis Buergerwille said. It called 750 billion euros of debt financing “a bold treaty violation.”

©2021 Bloomberg L.P.

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