Euro bonds through the back door?

In Europe, too, only more solidity will lead to more solidarity in the long term. | © Carola Vahldiek -

First, the judges stopped due to a constitutional complaint by "Bündnis Bürgerwille e.V." With a so-called hanging resolution the execution of the german consent law by the federal president. The temporary stop is valid until the decision on the urgent application is made. With the hanging order, the court prevents an irreversible condition from occurring until it is able to rule on the emergency motion. The constitutional court reacted with its wordless order to the passing of the so-called own resources resolution by the bundestag and bundesrat. This allows the EU to borrow on a large scale for the first time in its history.

These, in turn, are to feed the 750 billion euro "nextgenerationeu" (NGEU) reconstruction fund, which is intended to heal the economic scars of the pandemic and is planned as an important start-up financing for the digital and ecological modernization of europe. The EU commission cannot start borrowing and disbursing until all 27 EU countries have ratified the decision. In total, the european union should have around 1.8 trillion euros at its disposal by the end of 2027. The complaint is not against the expenditure per se, but against the fact that each member state should not provide the required funds on its own account.

Before corona, primary law was interpreted – also by the EU commission – in such a way that the european union may not bring about the budgetary balance required by article 310 (1) of the treaty on the functioning of the european union (TFEU) by incurring community debt. The creation of a debt option to finance the reconstruction fund would therefore lead to a substantial change in the european budgetary and financial architecture in the direction of a "quasi-statehood" of the EU. Whether this reorientation is to be seen as an overstretching of the existing primary law. Sees – as the author has also argued on this platform before (cf. "EU commission proposals on the reconstruction fund – the coronary overextension of the european treaties") is also viewed controversially between the german federal ministry of finance (BMF) (in the negative) and the german federal audit office (in the affirmative). Karlsruhe must now decide on the question of whether the limit of what is permissible is also exceeded in the process.

One point of criticism in terms of content is the organization of indirect transfers between the member states, in which, according to model calculations by the federal court of auditors, the federal republic finances the estimated pan-european net effect (grants minus a country's share of repayments) at a rate of about 45%, which is more than double germany's regular financing share of about 22.

Second, it establishes a new liability regime. If a member state is no longer able or willing to meet its payment obligations, the other member states must assume responsibility for its share of the debt (grants and loans).

In theory, EU states can be held liable for the full amount of the reconstruction fund debt to the european union until all EU bonds in the fund are repaid in full, i.E. Until 2058. Thereby it would not need a renewed consent of the countries liable to pay at the liability-triggering time. But this is precisely what article 125 TFEU is designed to avoid in principle. Because it could tempt member states to budget less soundly and thus create the wrong stimulus. The result would possibly be an economic and monetary union that is less robust and less resilient in times of crisis.

This could only be prevented by regulations yet to be negotiated, according to which z. B. Any payments from the EU budget to defaulting states are frozen and used to redeem their share of EU bonds.

Another area of tension arises with regard to art. 126 TFEU: under this provision, the EU commission and council monitor member states' compliance with budgetary discipline using two reference values, the so-called maastricht criteria:

  • Government debt (debt-to-GDP ratio) must not exceed a value of 60% of GDP.
  • The public deficit (deficit ratio) must not exceed 3% of GDP.

However, there is no fiscal discipline rule comparable to the fiscal rules for either the EU budget itself or the reconstruction fund. At present, it is also not planned to count the debts raised for the fund in any way to the national debt levels of the member states and in this way to take them into account in the fiscal rules. The federal ministry of finance does not see any national allocability here, while the deutsche bundesbank argues for a distribution in line with the financing share according to gross national income (GNI) – i.E. Around a quarter for germany. If the fund money were disbursed by 2026, the federal republic, together with the loans already taken out for the SURE program and the european stability mechanism (ESM), would receive more than. € (about 8% of GDP in 2019) must be allocated. Because the european debts are – in addition to the national debts – later to be serviced by the taxpayers in the member states. Instead of interest and principal payments on national debt, there are then higher contributions to the EU budget.

In addition, unlike the european stability mechanism (ESM), the reconstruction fund does not link financial aid to strict reform conditions, nor does it require that the projects it supports be financed proportionally with the country's own funds. The lack of conditionality and the obligation to co-finance additionally calls into question the effectiveness and efficiency of the use of funds, especially against the problematic background of experience with cohesion policy and the european semester.

With all awareness of the political signal effect of the reconstruction fund ("hamilton moment"), the highest german court should, however, cooperate within the scope of its possibilities to ensure that community borrowing by circumventing the fiscal rules – if at all – does not become a permanent solution in the european union. Because past experience suggests that in the next severe crisis the demand for a repetition of the planned debt financing will arise and the often emphasized uniqueness of debt financing will then belong to history.