ZEW Economist Friedrich Heinemann on the Federal Constitutional Court’s Ruling Regarding the EU’s Recovery Package

The Federal Constitutional Court rejected the constitutional complaint against Germany’s participation in the European recovery fund Next Generation EU. The Court also does not see the debt financing of the fund as exceeding the EU’s competences. Professor Friedrich Heinemann, head of the Research Unit “Corporate Taxation and Public Finance” at ZEW Mannheim, has commented on this matter.

“This decision of the Court emboldens those who want to increasingly finance European tasks through debt in the future. While the Karlsruhe-based court makes clear that debt financing of general budgetary tasks would not be permissible, the judgement is a green light for further European debt vehicles tailored to specific spending purposes. With this kind of backing from Karlsruhe, pressure from Brussels will now grow on the German government to clear the way for debt financing of new EU programmes.

In examining the liability consequences for Germany, the court opted for the easy way out. In its reasoning, the majority of the Second Senate ruled out the possibility of German liability for defaulting contribution payments of other Member States in the long run. However, this view is based on the optimistic assumption that there will be no insolvencies of Member States or hard exits from the European Union until the final repayment of the fund by 2058. Yet many analyses show that several EU states will have a serious debt sustainability problem in the medium term.

Counting on the certain ability of all 27 EU states to pay EU contributions for decades is therefore not convincing. Now that the Federal Constitutional Court has been lost as a strategic partner of the German government in the EU financial negotiations, it is particularly important that the German Bundestag assumes its responsibility to monitor Germany’s liability in Europe.”