Von der Leyen on brink as German court threatens EU’s biggest ever financial deal

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After its ruling in May 2020 threatened the participation of the German central bank in a vital bond-buying scheme of the European Central Bank (ECB), Germany’s highest court has taken aim at another EU-wide initiative: the €750billion (£668bn) recovery fund, also known as Next Generation EU. In yet another surprising move, the German Federal Constitutional Court, based in the city of Karlsruhe, has blocked the ratification process of the Own Resources Decision – the legislative instrument that would allow the European Commission to borrow money directly from the capital markets and repay it over the next decades. The Own Resources Decision must be ratified by all 27 member states before the Commission can start distributing the cash in the form of grants and low-interest loans.

So far, only 16 countries have submitted their ratification.

Last Friday, German President Frank-Walter Steinmeier was ready to sign off Germany’s ratification of the legal text but the constitutional court prevented him from rubber-stamping it in order to examine first an emergency appeal filed by the far-right party Alternative for Germany (AfD) and a civic group named Bündnis Bürgerwille, or Citizens’ Will Alliance.

Both argue the recovery fund is illegal and in breach of the EU treaties.

Reacting to the news, the European Commission reaffirmed its confidence on the legal validity of the Own Resources Decision.

It is unclear how long the German court will take to examine the emergency appeal.

Some say it could take weeks or months, perhaps thwarting the Commission’s schedule.

In an exclusive interview with Express.co.uk, Mar Aguilera Vaqués, professor of constitutional law at the University of Barcelona, warned EU chief Ursula von der Leyen her plans could indeed be thrown into disarray.

The legal expert claimed member states might have to go back to Brussels and change the recovery fund if the Court finds the bloc’s recovery package unconstitutional.

She said: “Whether it is illegal or not, it is for the German constitutional court to decide and for the European Court of Justice to consider…

“But I am a professor of constitutional law.

“My colleagues from international law always say international law is above internal law.

“On the other hand, we, constitutional professors, say it is the constitution of the country.”

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When asked what she thinks will happen, Ms Aguilera Vaqués said: “Of course, the German constitutional court could very well say ‘we cannot do this, because it goes against the constitution’.

“‘So we either change the constitution or the EU changes the recovery fund’.”

According to her, the latter is more likely.

She added: “Everybody knows…

“We will see… but Germany is a leading country in the EU so whatever its constitutional court says, it has an impact for sure.”

German lawyer and politician Dr Peter Gauweiler is one of those on the political scene who is arguing the recovery fund is “absolutely illegal”.

The lawyer harshly criticised the package and told Express.co.uk: “It is contrary to the structures of the European treaties.

“Fiscal law should not be Europeanised because of the bigger legitimisation basis of the national parliaments.

“It’s absolutely illegal.”

German MEP Gunnar Beck also echoed Dr Gauweiler in another interview with Express.co.uk.

Mr Beck said: “The recovery fund is so expensive and unlawful.

“It is clearly against the wording of the articles 310 and 311 of the Treaty of the Functioning of the EU.

“They clearly state that the EU is not allowed to take debt on the financial market.

“It is a breach of treaty. It is a breach of the EU constitution.”

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The Treaty on the Functioning of the European Union is one of two treaties forming the constitutional basis of the bloc, the other being the Treaty on European Union.

Article 310 reads: “With a view to maintaining budgetary discipline, the Union shall not adopt any act which is likely to have appreciable implications for the budget without providing an assurance that the expenditure arising from such an act is capable of being financed within the limit of the Union’s own resources and in compliance with the multiannual financial framework referred to in Article 312.”

Caroline Heber, senior research fellow at the Max Planck Institute for Tax Law and Public Finance, put forward similar claims in a recent entry for a blog from the University of Oxford.

She wrote: “According to the principle of conferral, which underpins the EU, the EU acts only within the limits of the competences conferred upon it by the member states in the Treaties to attain the objectives.

“Consequently, any action by the EU must be based on a sufficient authorisation to act granted within the EU Treaties.

“This also applies to the issuing of bonds on the financial markets by the Commission on behalf of the EU.

“The EU Treaties do not confer a general power to borrow on the EU.”

At times, the lack of a general power to borrow has not prevented the EU from issuing bonds on the financial markets.

Brussels has usually used the flexibility clause to overcome its lack of a fundamental borrowing competence.

However, Ms Heber noted, the flexibility clause cannot provide sufficient legal ground for the issuing of bonds for the recovery fund.

She added: “Unlike past examples, the funds are not limited to passing on the benefits of the EU’s credit rating to the member states.

“The borrowed funds are intended to finance transfers via economic policy measures and, although they may be covered by EU policy areas, there can be no doubt that this massive redistribution has an impact on the overall structure of the EU. Such a momentous borrowing and use of funds via the recovery fund cannot be based on Article 352 TFEU.

“As a result, the EU does not have sufficient competence to issue €750billion (£668billion) bonds to finance the recovery fund.”

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