German court dismisses legal challenge against EU fund

A medical worker attends the opening of a Covid test station on April 19, 2021 in Berlin, Germany.

Sean Gallup | Getty Images News | Getty Images

LONDON – The German constitutional court decided on Wednesday to dismiss legal challenges to the EU’s recovery plan, paving the way for the unprecedented stimulus that would be rolled out across the region.

Germany’s highest court had questioned the EU’s plan to raise € 750 billion ($ 900 billion) from the financial markets in late March to fund projects across the bloc and thus the economic shock of the Covid-19 crisis.

The move threw a curveball at much-needed stimulus and came after a group of Eurosceptic citizens expressed concern that the additional loans could become a permanent part of EU policy-making.

“Limits apply with regard to the volume, duration and purpose of the loan authorized by the European Commission, as well as with regard to possible liabilities for Germany,” the constitutional court said in its opinion on Wednesday.

In addition, the funds in question will be used solely to deal with the aftermath of the Covid-19 crisis, the court said.

The statement of the German court emphasizes that the decision of the 27 heads of state in July is of a temporary nature. This detail is especially important for Eurosceptics, who often worry about too much integration between the 27 EU Member States.

Wednesday’s decision allows Germany to complete the necessary legislative steps before disbursements take place later this year. Since last week, Austria, Germany, Estonia, Finland, Hungary, Ireland, Lithuania, the Netherlands, Poland and Romania still had to complete the national procedures before the European Commission could actually tap into the markets.

A European official, who did not want to be named due to the sensitivity of the trial, told CNBC on Monday that if all goes well, the first payouts could take place in July.

Austrian Finance Minister Gernot BlümeI told CNBC last week: “I am convinced that there will be no delay in issuing those European bonds as well.”

The funding is especially important for European countries that want to boost their economies after the pandemic. While vaccination coverage is on the rise across the bloc, some countries are still stuck or severely restricted due to a third wave of infections.

The euro was trading slightly lower against the US dollar after the announcement and the Greek 10-year Treasury has hovered around the flatline.

Judges at the German Constitutional Court.

Ronald Wittek