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With this judgment, Karlsruhe is paving the way for new EU debt pots

The Federal Constitutional Court has given further impetus to the European debate about new joint debts for the energy transition and overcoming the energy crisis.

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With this judgment, Karlsruhe is paving the way for new EU debt pots

The Federal Constitutional Court has given further impetus to the European debate about new joint debts for the energy transition and overcoming the energy crisis. The Karlsruhe judges ruled that the NextGeneration EU corona reconstruction program, which is worth around 807 billion euros and is financed with shared debt, is compatible with the Basic Law. In doing so, they dismissed two lawsuits against the program and the common EU debt.

For the first time, the European Commission is taking on such large amounts of debt for the fund, for which Germany and the other EU member states are liable with their share of the EU budget. The plaintiffs had argued that Germany was taking considerable financial risks, especially if an EU country went bankrupt or left the EU.

Even if this question took up a lot of space in the lawsuits and at the oral hearing in Karlsruhe, the judges only touched on it in their judgment. In an emergency decision last spring, the court allowed Federal President Walter Steinmeier to sign the law for borrowing. At that time, the judges had ruled that even in the worst case, if other EU countries were to default, Germany would still be able to bear the financial obligations.

In Tuesday's verdict, the judges primarily dealt with the question of whether the EU had exceeded its competences by taking on joint debt. In their verdict, the judges make it clear that the EU debt is giving them a lot of headaches.

“The judges say that there is a possibility that the EU may have exceeded its competences with NextGeneration EU and that the European treaties were violated,” says Mattias Wendel, professor of public law at the University of Leipzig. "In any case, from their point of view, the breach of contract is not obvious."

The fact that the majority of the Senate still waved the debt-financed fund through is because the judges took a back seat in this case and only examined whether there was an obvious violation of competence.

A constitutional judge even gave up completely: Peter Müller did not support the verdict. In his view, the construction program is the first step towards a transfer union in which Germany is liable for the debts of others.

"The real surprise was that the judges did not refer this question to the European Court of Justice," says Wendel. “That could have provided legal clarity. It has still not been clarified where exactly the limits of competence run and that is legally unsatisfactory.”

The plaintiffs, including law professor Bernd Lucke, cannot go before the ECJ themselves. The judges there only accept cases that are referred there by national courts or when people who are directly affected by EU law are suing.

At the same time, the judges outlined in their judgment under which conditions the EU can incur further common debts in the future. The judges require that the purpose of new debt pots and the size of the debt are clearly defined, that the debt is temporary and that the amount of new debt raised does not exceed the rest of the EU budget.

For the time being, however, the judges have blocked the entry into a permanent debt union, in which the EU can take on debt like a state in order to finance its work. "The court clearly says that the duration and volume of new debt must be clearly defined," said Thu Nguyen, Fellow at the Jacques Delors Center Berlin.

"However, the judges rule out a permanent fund without a time limit under the current contracts." Experts believe that the hurdles for new temporary debt are so low that they clear the way for new projects such as those currently being discussed in Europe .

"The hurdles that the court raises when it comes to Brussels' attempts to continue to carry out debt-financed tasks are not as strict and high as some had hoped and others feared," says Martin Nettesheim, Professor of European Law at the University of Tubingen. “We all know how creative the Commission can be in calling instruments unique. I see more justification and construction effort, but no real hurdle.”

"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," warns Friedrich Heinemann from the Center for European Economic Research. On Sunday, Ursula von der Leyen, the President of the European Commission, called for a "sovereignty fund" to subsidize future technologies.

However, Paschal Donohoe, the newly re-elected head of the Eurogroup, has ruled out a new fund financed with joint debt for the time being. “Some governments are publicly calling for new funding models and new funding. But the only consensus that currently exists at finance ministerial level and the only agreement that exists relates to the instruments that we have already agreed to use," the Irish politician told WELT.

“The currently only political agreement covers existing budgetary instruments and NextGeneration EU and its use. But at the moment there is no political consensus on anything that goes beyond that.” The available funds were sufficient to respond to the current challenges.

"Everything on shares" is the daily stock exchange shot from the WELT business editorial team. Every morning from 7 a.m. with our financial journalists. For stock market experts and beginners. Subscribe to the podcast on Spotify, Apple Podcast, Amazon Music and Deezer. Or directly via RSS feed.

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