14 April 2021

How Germany’s top court could ruin the EU’s spending bonanza

By Sebastian Thormann

Germany’s top court recently dealt a serious blow to the EU’s plans for a €750bn Covid Recovery Fund.  Federal president Steinmeier must now wait until the judges decide whether the bailout is constitutional or not. Given that the package requires ratification from every member state, a successful challenge would mean the EU’s big plans for ‘Corona Bonds’ would be dead in the water.

At the heart of the debate in Germany is the concept of a ‘debt union’: the idea that the EU will take up debt as an international body, which will then be paid back by the contributions from member states. Such a move was never envisioned by the authors of the EU treaties, and the Federal Audit Office has warned of a “liability risks in the three-digit billions” for Germany. For decades, leading politicians in Germany assured voters that this would never happen. Now it is about to. 

While Chancellor Merkel’s center-right Christian-Democratic Union party (CDU) promises this will be a one-time action necessitated by the coronavirus crisis, finance minister Olaf Scholz of the social democrat SPD called it a “Hamiltonian moment.” His reference to the American founding father and prominent federalist Alexander Hamilton – known for negotiating the Compromise of 1790 under which the new United States assumed the wartime debts of individual States, solidifying the legitimacy of the nation’s burgeoning federal government – is a bad sign. Evidently, Scholz sees debt union as much more than a one time thing. To him, it’s the next step to ever-deepening EU integration and centralisation. Meanwhile, the president of Germany’s central bank called this decision “concerning” and urged against making it permanent.

Two legal questions loom large: First, EU treaties prohibit the Union from taking up debt on behalf of member states or making them liable for others. Under the proposal, the debt would be repaid by the EU budget, consisting of a few direct taxes and large member contributions, with Germany being the most significant contributor. If other EU states fail to do so adequately, Germany would need to step up, in effect being liable for their financial actions. 

Second, there’s a constitutional question about the powers of the Bundestag to approve its own budgets. Up until now, the German parliament has reserved the right to approve its own debts. Under the new plan, issuing new EU bonds will be a question for Brussels, not Berlin. By passing the law in question, the Bundestag has essentially tried to abdicate its constitutional power to an international body. Is that something it should be allowed to do? That’s for Germany’s Constitutional Court to decide.

It would not be the first time the German court has chided EU institutions. In a stunning move last year, the court found the European Central Bank’s (ECB) Public Sector Purchase Programme, which involves the ECB buying up member states’ government bonds, was in violation of EU treaties. In doing so, it went directly against the European Court of Justice’s (ECJ) judgment on the issue. The German Constitutional court reviewed the ECJ interpretation and found it ultra vires (“beyond its powers”). In essence, a national court found an EU court’s decision to be void because it heavily favoured an extension of the EU’s powers with no basis in its authorising treaties. 

That was the first time a national court reviewed a European institution’s compliance with its treaties and declared a breach. And it could happen again with this case. All of this leads to a larger question: Should national courts be able to review the EU’s adherence to its treaties and national constitutions? 

The EU’s supporters, of course, oppose this and have viciously attacked Germany’s top court. That notorious proponent of an EU super-state, Guy Verhofstadt, warned this principle might be “the beginning of the end” of the EU. The Financial Times editorial board lashed out against the court’s supposedly “extreme interpretations of the right to vote and the principle of national budgetary sovereignty”. Last year, in Brussels, there was even talk about possible treaty infringement proceedings against Germany – because its highest court exposed the EU’s violations of those same treaties. All of those reactions echoed one sentiment: EU law should reign supreme over national law in all circumstances.

There’s just one problem with that: The EU has no constitution. It gets its power and authority from the 27 member nations whose constitutions allow them to sign treaties establishing the EU’s institutions. Any action that grants the EU powers outside the scope of the treaties that establish its authority would be illegitimate. Otherwise, the EU would be able to expand its authority on its own and establish its treaties as a quasi-constitution – essentially a power grab.

In Germany, much of the political world is in favour of a more powerful EU. You might argue, if a national government wants to give the EU more power, then that’s fine; after all, it represents the nation’s voters. That’s true, but only as long as it happens under the rules and limitations laid out in that country’s constitution. In Germany, the constitution remains the supreme law of the land. Without constitutional revision, the national government is not empowered to slowly convert the EU from an international organisation into a federal state. 

There can be no legitimate Hamiltonian moment without the consent of the people. And so far in Europe, voters have rejected an EU constitution. 

European citizens have consistently been promised there will be no gradual, undemocratic slide towards a centralised EU government – now Germany’s Constitutional Court looks like the last institution left standing that can uphold that promise.

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Sebastian Thormann is a Young Voices Contributor, a student at the University of Passau, Germany, and a columnist at the Lone Conservative.

Columns are the author's own opinion and do not necessarily reflect the views of CapX.