Friday , 12 July 2024
Home Global Economy Did Brussels go too far?
Global Economy

Did Brussels go too far?

Four days and four nights had to be negotiated in Brussels in the summer of 2020 before a visibly relieved EU Council President was able to announce: "We did it. Europe is strong. Europe is united," said Charles Michel. "We did it. Europe is strong. Europe is united." Two years later, in the summer of 2022, negotiations have to be held again. This time the venue is not Brussels, but Karlsruhe. Only two days and no nights are planned.

For the first time, the EU is incurring its own debt

The subject of the negotiations was then in Brussels and this time in Karlsruhe is the 750 billion euro Corona reconstruction fund. This money is intended to help EU countries that have been hit economically by the pandemic. 390 billion euros are to be paid out as grants, 360 billion euros as loans.

To finance the aid package, the EU should be allowed to take on its own debt for the first time. This means that the EU Commission can exceptionally raise funds of up to 750 billion euros on the capital markets on behalf of the EU – at prices from 2018 (today around 806.9 billion euros). The whole thing is limited to 2026. The debts are to be repaid by 2058.

All EU countries have now agreed to this. The vast majority have already applied for money and submitted the necessary investment plans. The billions are to be invested primarily in climate protection and the expansion of digitization.

Violation of the Basic Law?

The Bundestag had approved last year. In the plaintiffs' view, he should not have done so. The EU reconstruction fund means that the Bundestag can no longer meet its "overall budgetary responsibility". All EU states are jointly liable for the debts they have taken on: if one state cannot meet its obligations, the others have to step in. According to the plaintiffs, Germany is taking on incalculable risks worth billions. The Bundestag is no longer "master of its budget law". Budget law, i.e. the right to determine who gets how much money, is the Bundestag’s most important control right.

The reconstruction fund also leads to a joint debt of the EU countries. The EU treaties did not allow that either. Nor should a member state be liable for the debts of other countries. The EU is doing more here than it is legally allowed to do.

A controversial question. The starting point for the procedure in Karlsruhe is that, according to the Basic Law, Germany may transfer certain competences to the EU through its people's representatives. To put it simply, if the EU were to overstep these powers quite obviously and massively, Germany would not have agreed to it. The Federal Constitutional Court will now review this for the reconstruction fund.

EU procedures have a long tradition in Karlsruhe

Similar procedures in the field of tension between Europe and the Basic Law have often taken place in Karlsruhe, for example in 2012 for the European ESM bailout fund. The red thread in the decisions was mostly that Germany was allowed to participate in the EU projects, but the court pointed out certain legal limits.

In May 2020, however, there was a big bang. With its government bond purchase program (PSPP), the European Central Bank has massively exceeded its powers, so that there is a violation of the Basic Law. A judgment from Karlsruhe that caused heated discussions.

The plaintiffs

In the current case, a group of professors around the Eurosceptic and former AfD chairman Bernd Lucke complained. More than 2,200 citizens have joined the lawsuit and also filed a constitutional complaint. Another constitutional complaint that Karlsruhe wants to negotiate on Tuesday comes from ex-BDI boss Heinrich Weiss.

The AfD parliamentary group has also jumped on the bandwagon. She has applied for organ dispute proceedings against the Bundestag, which, however, are not yet being negotiated.

urgent decision

With an urgent application, the plaintiffs wanted to prevent Germany from being able to ratify the EU decision at all. That would have blocked the entire funding system. The EU Commission could only take on debt after all member states had also given their formal approval.

However, Karlsruhe rejected the urgent application in April 2022, thus allowing German participation in the Corona development fund. A "high probability" of a violation of the Bundestag's overall budgetary responsibility "cannot be determined", according to the decision of April 2021. The legislature has a "wide scope of assessment". The amount, duration and purpose of the loans that the EU Commission is allowed to take out are just as limited as Germany's possible liability. The funds should also be used exclusively to deal with the consequences of the Corona crisis. Additional borrowing by the EU is not planned.

Just over three weeks earlier, the Federal Constitutional Court had ordered the Federal President, in an unusual step, not to sign the German ratification law. He should wait for the urgent decision from Karlsruhe. Usually something like this happens amicably – i.e. without an official hanging decision from Karlsruhe.

Questions to be answered

The oral hearing will deal with the following questions: Will the Corona reconstruction fund – despite its time limit – establish permanent mechanisms that will ultimately result in a member state being liable for other EU countries?

Can obligations arise that are of structural importance for the Bundestag's budget law?

Is there a guarantee that the Bundestag has sufficient influence on how the funds made available are handled?

And above all: does the program go so far beyond the legal limits that Karlsruhe says ultra vires – that is, accuses the EU of exceeding its competence again? Is there a bang again?

Before that is possible, however, Karlsruhe would have to submit the matter to the ECJ. Because the BVerfG cannot overturn EU law itself. A verdict could be given by the end of the year.

Leave a comment

Leave a Reply

Your email address will not be published. Required fields are marked *

Related Articles

Global Economy

Spotlight on 2023: S&P 500 and the Significance of the 4400 Level

In our past exploration of the financial landscape of 2023, we delved...

Global Economy

AI and Data Analytics Drive Efficiency in Money Laundering Detection

BIS Innovation Hub Turns to Tech for Money Laundering Detection The BIS...

Global Economy

Russell 2000 Gains Momentum as Tech Stocks Outperform Value

Tech stocks have dominated the equity markets in recent months, surpassing value...

Global Economy

Crypto Exchange Bybit Announces Exit from Canadian Market Amid Regulatory Changes

Regulatory Shifts Prompt Bybit's Strategic Withdrawal from Canadian Crypto Market