German Court Clears Road for EU Recovery Fund Ratification

Germany’s top court allowed the country to ratify the European Union’s 800 billion-euro ($960 billion) pandemic recovery fund, brushing off a bid to block the key economic program while a suit against the program is pending.

The plaintiffs seeking to topple the program failed to show that they were highly likely to win their challenge, so German ratification can’t be put on hold while the underlying dispute is ongoing, the nation’s Federal Constitutional Court said in a statement on Wednesday.

“The underlying case isn’t per se inadmissible or without merit,” the court said in a statement. “Based on a summary examination, however, it does not appear highly likely that the court will find a violation” of the constitution.

The massive stimulus plan marks the crux of the region’s economic response to the pandemic-induced crisis, consisting of grants and loans that will be primarily given to the worst-hit EU nations. Delaying or derailing the package could have put the bloc at risk of falling even further behind other advanced economies, after a botched vaccine rollout has already pushed out its recovery prospects.

The fund doesn’t create direct liabilities for the country and limits apply to the volume, duration and purpose of the European Commission’s borrowing, the court said. However, it cannot be ruled out that the liability risks, the fund’s duration and the parliament’s limited involvement may violate the constitution, according to the judges who said they will now look closer into these issues.

The decision is part of litigation filed at the end of March on behalf of political group Buendnis Buergerwille, which said the EU shouldn’t be allowed to issue debt to finance its recovery program. The group said it will fight the program now in the continuing case.

The commission isn’t allowed to raise debt in capital markets unless the underlying legislation has been ratified in all 27 EU member states. In Germany’s case, that requires the signature of the president, Frank-Walter Steinmeier, who now can proceed.

Because the outcome of the case is “open,” the court had to balance the impacts associated with granting or rejecting the bid for a preliminary injunction, it said. Delaying ratification would undermine the goals of the program to swiftly fight the pandemic, given that the case is likely to pend for a long time, the judges said.

Since the judges said they will have to send the litigation to the EU’s top court for guidance, that tribunal could eventually strike the fund down should it be deemed to violate the bloc’s rules. The German court can also itself later rule against it, they said.

Buendnis Buergerwille said the court left room for a final judgment against the fund. That means the proceedings will eventually determine whether Germany violated its constitution by agreeing to the instrument and whether the commission overstepped its powers, the group said.

Wednesday’s ruling was welcomed in a Twitter post by Ursula von der Leyen, the commission’s president.

The underlying suit will likely take years to resolve, and highlights the limits to fiscal integration in the region. German Eurosceptics routinely file challenges to EU programs and Germany’s top court caused a stir last year when it voiced objections to an asset-purchase program of the European Central Bank.

However, the court gave the ECB a way out by supplying more information about its deliberations to the German government.

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