Constitutional complaints challenging the Act Ratifying the EU Own Resources Decision (‘EU Recovery Package’) unsuccessful

Press Release No. 103/2022 of 06 December 2022

Judgment of 6 December 2022
2 BvR 547/21, 2 BvR 798/21

Act Ratifying the EU Own Resources Decision - Next Generation EU

With a judgment pronounced today, the Second Senate of the Federal Constitutional Court rejected two constitutional complaints directed against the Act Ratifying the EU Own Resources Decision (Eigenmittelbeschluss-Ratifizierungsgesetz – ERatG).

In July 2020, the heads of state and government of the EU Member States agreed on the temporary recovery instrument ‘Next Generation EU’ (NGEU) to address the economic and social effects arising from the COVID-19 pandemic. On that basis, the Council of the European Union adopted Council Decision of 14 December 2020 on the system of own resources (Eigenmittelbeschluss 2020 – 2020 EU Own Resources Decision), which authorises the European Commission to borrow up to EUR 750 billion in 2018 prices on capital markets on behalf of the European Union until the year 2026. The Federal Republic of Germany ratified the 2020 EU Own Resources Decision with the challenged Act.

The Act Ratifying the EU Own Resources Decision does not violate the complainants’ right to democratic self-determination derived from Art. 38(1) first sentence of the Basic Law (Grundgesetz – GG) in conjunction with Art. 20(1) and (2) and Art. 79(3) GG. The 2020 EU Own Resources Decision does not manifestly exceed the current European integration agenda (Integrationsprogramm) and does not impair the overall budgetary responsibility of the Bundestag. Therefore, a request for a preliminary ruling from the Court of Justice of the European Union (CJEU) is not necessary.

This decision was reached with 6:1 votes. Justice Müller filed a dissenting opinion.

Facts of the case:

In July 2020, the heads of state and government of the EU Member States agreed on the multiannual financial framework for the period of 2021-2027 (MFR) and the temporary recovery instrument NGEU. By decision of 14 December 2020, the Council of the European Union formally adopted the 2020 EU Own Resources Decision. This authorises the European Commission to borrow up to EUR 750 billion in 2018 prices on capital markets until the year 2026 on behalf of the European Union. Up to EUR 360 billion of the funds borrowed may be used for providing loans to the member states and up to EUR 390 billion of the funds borrowed may be principally used for their expenditure. The European Union, however, must not use funds borrowed on capital markets to finance its operational expenditures.

The temporary recovery instrument NGEU is based on Council Regulation (EU) 2020/2094 of 14 December 2020 (EURI Regulation) establishing a European Union Recovery Instrument (EURI) to support the recovery in the aftermath of the COVID-19 crisis. The Recovery and Resilience Facility (RRF) is the key instrument at the heart of the NGEU. It was created by Regulation (EU) 2021/241 of the European Parliament and of the Council of 12 February 2021 establishing the Recovery and Resilience Facility (RRF Regulation).

On 19 February 2021, the Federal Government submitted a legislative draft for the Act Ratifying the EU Own Resources Decision. On 25 March 2021, the Bundestag adopted the bill and the Bundesrat gave its consent to the bill on 26 March 2021.

On 26 March 2021, upon the application of a number of complainants seeking a preliminary injunction, the Second Senate of the Federal Constitutional Court issued an order keeping the Federal President from certifying the Act until the Court rendered its decision on the application for a preliminary injunction.  The Court rejected this application in an order dated 15 April 2021.

The Act was signed by the Federal President on 23 April 2021 and promulgated in the Federal Law Gazette on 28 April 2021.

The 2020 EU Own Resources Decision entered into force on 1 June 2021, with retroactive application from 1 January 2021. On 28 June 2021, the European Commission carried out the first payments under the NGEU.

The complainants assert that the Act Ratifying the EU Own Resources Decision violates their rights under Art. 38(1) first sentence GG in conjunction with Art. 20(1) and (2) and Art. 79(3) GG.

Key considerations of the Senate:

The constitutional complaints are admissible, but unfounded. Measured against the standards developed by the Court for the constitutional review on the basis of the ultra vires doctrine (ultra vires review) and the review on the basis of constitutional identity (identity review), the challenged Act does not violate the complainants’ rights.

I. 1. The right to democratic self-determination, as derived from Art. 38(1) first sentence GG in conjunction with Art. 20(1) and (2) and Art. 79(3) GG, not only protects citizens against a substantial erosion of the Bundestag’s constitutional ability to shape policy, but also affords them a right that institutions, bodies, offices and agencies of the European Union exercise only those competences that have been transferred to them in accordance with Art. 23(1) GG. This right is violated when EU institutions, bodies, offices and agencies take measures that either lie outside the scope of the European integration agenda or exceed the limits set out in Art. 79(3) GG. Art. 23(1) through (3) GG entail a responsibility of the Bundestag as well as the Federal Government to ensure that the constitutional limits with regard to European integration are respected (Integrationsverantwortung).

2. The principle of popular sovereignty (Art. 20(2) first sentence GG) requires that any act of public authority exercised in Germany can be traced back to its citizens, i.e. the electorate. The Basic Law thus guarantees all citizens a right to free and equal participation in the legitimation and influencing of the public authorities that affect them.

a) Art. 38(1) first sentence in conjunction with Art. 20(1) and (2) and Art. 79(3) GG therefore protects against the unilateral appropriation of sovereign powers by EU institutions, bodies, offices and agencies. In this regard, the exercise of competences other than the ones transferred to the European Union by the act of approval to the relevant treaty violates the core of the principle of popular sovereignty, which enjoys absolute protection under Art. 1(1) GG.

b) These constitutional standards correspond with the Treaty on European Union (TEU). In particular, the European Union is bound by the principle of conferral (Art. 5(1) first sentence and Art. 5(2) TEU) and EU fundamental rights, and must respect the constitutional identities of the different Member States, which are part of the EU’s foundations. An extension of powers for EU institutions, bodies, offices and agencies requires a treaty amendment, which the Member States must effectuate and take responsibility for according to their respective constitutional rules.

c) The Federal Constitutional Court assesses whether an EU measure respects the European integration agenda, as set out in the act of approval, on the basis of an ultra vires review. This review serves to ensure a sufficient level of democratic legitimation in the implementation of the integration agenda, and thereby safeguards the foundation of EU law and its precedence of application as well as the guarantee of the rule of law. Ultra vires review is limited to determining whether an institution, body, office or agency of the European Union exceeded its competences in a sufficiently qualified manner.  This means that the exceeding of competences must be manifest and of structural significance to the division of competences between the European Union and the Member States. An EU institution, body, office or agency manifestly exceeds the competences conferred on it when a competence for the contested measure cannot be based on any serious legal point of view. A structurally significant shift of competences to the detriment of the Member States results where it has a considerable impact on the principle of conferral and would require Parliament to approve it under Art. 23(1) GG.

3. The right to democratic self-determination is also violated when acts of EU institutions, bodies, offices and agencies encroach upon the limits of the principles enshrined in Art. 20 GG, which are declared inviolable by Art. 79(3) GG (in conjunction with Art. 23(1) third sentence GG); specifically, when such acts substantially restrict the ability of the Bundestag to shape policy.

a) The budgetary powers of the Bundestag and its overall budgetary responsibility are indispensable elements of the constitutional principle of democracy and are protected under Art. 20(1) and (2), and Art. 79(3) GG. It is for the Bundestag, as the constitutional organ directly accountable to the people, to take all essential decisions on revenue and expenditure, including the overall financial burden imposed on citizens; this prerogative forms part of the core guarantees enshrined in Art. 20(1) and (2) GG, which are beyond the reach of a constitutional amendment. It would thus violate the principle of democracy if the type and level of public spending were, to a significant extent, determined at the supranational level, depriving the Bundestag of its decision-making prerogative. Besides that, the Court, in its case-law, has not yet decided whether and to what extent justiciable limits regarding the assumption of payment obligations or liabilities can be derived from the principle of democracy (Art. 20 (1) and (2) GG).

b) The Federal Constitutional Court examines whether acts by EU institutions, bodies, offices and agencies conflict with the principles protected by Art. 79(3) GG through review on the basis of constitutional identity (identity review).

4. Ultra vires review and identity review are exercised with regard to European integration with restraint and in a cooperative manner. This requires – when necessary – that the Federal Constitutional Court request a preliminary ruling in accordance with Art. 267(3) of the Treaty on the Functioning of the European Union (TFEU) from the Court of Justice of the European Union.

5. The obligations arising from the responsibility of constitutional organs with regard to European integration under Art. 38(1) first sentence GG depend upon the circumstances of the particular case. A violation of such responsibility can only be found if the constitutional organ takes no action at all, if the laws enacted and measures taken are evidently inadequate, or if they fall significantly short of achieving the aim of the protection.

II. Based on these standards, the 2020 EU Own Resources Decision, which is the subject of the challenged act of approval, does not manifestly exceed the current European integration agenda. Nor does it affect the constitutional identity of the Basic Law. Therefore, no violation of the complainants’ right to democratic self-determination can be held.

1. The 2020 EU Own Resources Decision is based on Art. 311(2) and (2) in conjunction with Art. 122(1) and (2) TFEU.  Art. 5(1) subpara. 1(a) of the 2020 EU Own Resources Decision authorises the European Commission to borrow up to EUR 750 billion in 2018 prices on capital markets on behalf of the European Union until the year 2026. Ultimately, it is not ascertainable that the 2020 EU Own Resources Decision constitutes a manifest violation of the European integration agenda.

a) It is true that the Treaties do not contain a specific competence that would authorise the European Union to borrow on the capital markets. However, under exceptional circumstances, it does not appear completely implausible that the measure could be based on Art. 311(2) TFEU, with the borrowed funds constituting a new form of ‘other revenue’, provided that the decision on own resources satisfies at least the following requirements: it contains an authorisation to borrow on behalf of the European Union; it ensures that the funds obtained are used exclusively for tasks for which the European Union has competence in accordance with the principle of conferral; it subjects the borrowing to limits in terms of both the duration and the amount of the commitments assumed; and it provides that the amount of the ‘other revenue’ does not exceed the total amount of own resources. By contrast, it would be manifestly impermissible for the European Union to borrow on capital markets to provide general financing for its budget.

b) Against this backdrop, it cannot be clearly ruled out that Art. 5 of the 2020 EU Own Resources Decision satisfies the requirements for the authorisation of the European Union to borrow on capital markets as ‘other revenue’ in the sense of Art. 311(2) TFEU and that it does not encroach upon the principles of primary law with respect to the EU’s budget and financial system.

aa) An authorisation of the European Union to borrow on capital markets as ‘other revenue’ in the sense of Art. 311(2) TFEU is laid down in the 2020 EU Own Resources Decision.

(1) Pursuant to Art. 311(2) TFEU, the budget of the European Union must be wholly funded through its own resources without prejudice to other revenue. Art. 311(3) first sentence provides that the Council shall unanimously, acting in accordance with a special legislative procedure, and after consulting the European Parliament, adopt a decision laying down the provisions relating to the system of own resources of the European Union. Pursuant to the second sentence of this provision, the Council may establish new categories of own resources or abolish an existing category. Art. 311(3) third sentence further provides that a decision on the European Union’s own resources shall not enter into force until it is approved by the Member States in accordance with their respective constitutional requirements. The specific designation of ‘other revenue’ in a decision on own resources is a prerequisite under primary law. Without it, a reliable decision by the Council and the national parliaments on the provision of own resources cannot be taken.

(2) Art. 4 and Art. 5 of the 2020 EU Own Resources Decision set out a legal framework for the European Union to borrow on its own behalf and, in doing so, comply with the aforementioned requirements for an own resources decision. The borrowed funds are ‘other revenue’ in the sense of Art. 311(2) TFEU. According to the wording of the 2020 EU Own Resources Decision, the funds do not constitute own resources in the sense of Art. 311(3) first sentence TFEU because the European Union is not permitted to use them for the general budget. Art. 4 of the 2020 EU Own Resources Decision makes clear that the Union cannot use funds borrowed on the capital markets for the financing of operational expenditures. According to Art. 5(1) subpara. 1 of the 2020 EU Own Resources Decision, the funds are “for the sole purpose of addressing the consequences of the COVID-19 crisis through the Council Regulation establishing a European Union Recovery Instrument and the sectoral legislation referred to therein”, that is, exclusively for the financing of specific COVID-19-related programmes of the European Union and the Member States.

bb) Authorising the European Union to borrow on the credit markets as ‘other revenue’ does not amount to a manifest violation of Art. 311(2) and (3) TFEU when the funds are used for the exercise of competences assigned to the European Union and, to that end, are from the outset strictly limited to such specific purposes.

(1) The distribution of the funds borrowed pursuant to Art. 4 and Art. 5 of the 2020 EU Own Resources Decision is intended to address severe difficulties within the scope of Art. 122 TFEU. Art. 5(1) subpara. 1(a) of the 2020 EU Own Resources Decision states that the authorisation for the European Union to borrow funds is limited to the exceptional need “to address the consequences of the COVID-19 crisis” and is therefore assigned to specific purposes. This limitation is also evident in Art. 4 und Art. 6 of the 2020 EU Own Resources Decision (“Extraordinary and temporary increase in the own resources ceilings for the allocation of the resources necessary for addressing the consequences of the COVID-19 crisis”) as well as the recitals.

(2) Though it remains doubtful whether Art. 4 and Art. 5 of the 2020 EU Own Resources Decision can indeed be based on the competences set out in Art. 122(1) and (2) TFEU, ultimately, however, it cannot be clearly ruled out.

(a) Art. 122(1) TFEU provides that, without prejudice to any other procedures provided for in the Treaties, the Council may, on a proposal from the European Commission and in a spirit of solidarity between Member States, decide upon measures appropriate to the economic situation, in particular, if severe difficulties arise in the supply of certain products, notably in the area of energy. Pursuant to Art. 122(2) first sentence TFEU, the Council may, on a proposal from the European Commission, grant financial assistance from the European Union under certain conditions to a Member State that is in difficulties or is seriously threatened with severe difficulties caused by natural disasters or exceptional occurrences beyond its control.

The competence for exceptional measures in Art. 122 TFEU must generally be understood narrowly. In this regard, there are some weighty arguments that may bring into question recourse to this treaty provision in the present case: among others, the wording of Art. 122(2), which states that assistance is only for difficulties “caused by natural disasters or exceptional occurrences” that are beyond the control of a Member State.  This could mean that assistance for Member States as a collective group should not be included within the scope of this provision. The tenuous connections between the EURI Regulation and the consequences of the pandemic also call into question whether Art. 122 TFEU provides a sufficient legal basis for the Recovery Instrument. At least 37% of the funds are assigned to achieving the climate target and at least 20% are assigned to digitalisation. While funds for digitalisation might have some connection with the pandemic in view of the consequences of lockdowns and the limitations on direct personal contact, such connection is harder to discern with regard to climate change. In addition, the fact that a good 10% of the funds – EUR 77.5 billion – are to be used to subsidise ongoing programmes of the European Union that have no relation to the COVID-19 pandemic at all also argues against recourse to Art. 122 TFEU.

(b) Despite these concerns, Art. 4 and Art. 5 of the 2020 EU Own Resources Decision do not manifestly exceed the competence set out in Art. 122(1) and (2) TFEU. Insofar as reference is made to the EURI Regulation (Art. 5(1) subpara. 1 of the 2020 EU Own Resources Decision) and its legislative framework in order to assign the authorisation for borrowing to specific purposes, this can ultimately be regarded as an at least tenable interpretation of Art. 122(1) and (2) TFEU.

That the EURI Regulation is based on Art. 122(1) TFEU and that the clause “difficulties arise in the supply of certain products, notably in the area of energy” – which argues against the EURI Regulation being covered by this competence – is understood as merely illustrating one example of a case falling within the scope of this competence finds at least some support in the wording of Art. 122(1) (“in particular”). Thus, it is not untenable to qualify the allocation of funds under the NGEU as a “measur[e] appropriate to the economic situation”.

It therefore cannot be held that the Council manifestly exceeded the competence conferred in Art. 122(1) and (2) TFEU, provided that the EURI Regulation remains strictly tied to the historically exceptional case of “support[ing] the recovery in the aftermath of the COVID-19 crisis” (Art. 1(1) of the Regulation) and “tackl[ing] the adverse economic consequences of the COVID-19 crisis” (Art. 1(2) of the Regulation).

The 2020 EU Own Resources Decision stresses that the EURI Regulation and the NGEU are exceptional measures enacted to tackle the adverse economic consequences of the COVID-19 crisis. In the oral hearing on this matter, the Federal Government and the Bundestag emphasised this and insisted that the NGEU is intended to be a one-time instrument in reaction to an unprecedented crisis, which had resulted in massive disruptions to the European economy, and that Germany’s approval in the form of the challenged Act was made on those grounds only. They further asserted that it would not constitute a step towards a ‘fiscal union’.

cc) The authorisation of the European Union to borrow on capital markets set out in Art. 5 of the 2020 EU Own Resources Decision and the resulting ‘other revenue’ are limited to a maximum of EUR 750 billion in 2018 prices and are also subject to a time limit. These limitations are integral to the Act Ratifying the 2020 EU Own Resources Decision.

dd) However, it does appear possible that the funds obtained as ‘other revenue’ in the sense of Art. 311(2) TFEU through borrowing on the basis of Art. 5 of the 2020 EU Own Resources Decision could exceed the ‘own resources’ contemplated in Art. 311(3) TFEU.  This is not manifestly evident though.

(1) The 2020 EU Own Resources Act authorises the European Commission to borrow on capital markets up to EUR 750 billion and to direct the borrowing operations such that no new net borrowing takes place after 2026. Whether borrowing in such an amount and timeframe can still be considered an exceptional measure in relation to the EU budget appears doubtful. Given the wording of Art. 311(2) TFEU (specifically, “without prejudice to”), ‘other revenue’ is to remain the exception in relation to own resources of the EU. That the authorisation to borrow on annual basis exceeds the annual total budget of the European Union for the years 2021 and 2022 indicates that the authorisation violates Art. 311(2) and (2) TFEU.

(2) A different conclusion may result, however, when the issue is assessed within the multiannual financial framework of the European Union (cf. Art. 312 TFEU). The period applicable to the authorisation to borrow under the 2020 EU Own Resources Decision runs until 2026. In the years 2023 to 2026, the contemplated borrowing will be considerably lower than the volume of the general budget, such that for the majority of the budget years until 2026, the exception to the rule relationship mandated by Art. 311(2) and (3) TFEU is maintained. This applies all the more if the analysis is entirely based on the multiannual financial framework, setting aside the principle of annuality.

Against this backdrop, and considering the design of the NGEU as well as the protective purpose underpinning Art. 311(2) and (3) TFEU, it does not appear manifestly untenable to base the legal analysis on the multiannual financial framework rather than on the budget of a specific year. On this basis, the exception to the rule relationship mandated by the Treaty is only dispensed with for two out of the seven years in question; for the overall intended period of the NGEU, there is no deviation from the general rule: The multiannual financial framework for 2021-2027 amounts to a total of EUR 1,074.3 billion. While the NGEU funds of up to EUR 750 billion constitute a considerable amount in comparison, it cannot be said that this manifestly gives rise to a violation of Art. 311(2) and (3) TFEU.

c) A violation of Art. 125(1) TFEU by the 2020 EU Own Resources Decision also cannot be established. While a circumvention of this provision cannot be ruled out, it is at least not manifestly evident.

aa) A direct violation of Art. 125(1) TFEU can be ruled out from the outset, given that the NGEU neither establishes liability of the European Union for Member State commitments nor does it create a mechanism that would impose direct liability on the Member States.

bb) Nevertheless, the 2020 EU Own Resources Decision might amount to a circumvention of Art. 125(1) TFEU.

Art. 125(1) TFEU provides that neither the European Union, nor any Member State is liable for the commitments of any (other) Member State; nor may either of these assume the commitments of another Member State. The purpose of the no-bailout clause is to ensure that the financial policy of the Member States remains autonomous and that there is no mutual responsibility for the respective liabilities of the Member States. European Union law does not allow a financial equalisation among Member States.

A circumvention of the no-bailout clause cannot be entirely ruled out here. A number of Member States have excessive debt. In light of this, the NGEU could serve to alleviate the pressure of market logic on these Member States and provide them with favourable lending conditions. With debt financed non-repayable grants and the borrowing by the European Union in the context of the NGEU, the need for Member States to engage in new borrowing at the national level is considerably reduced. If the appropriations in the European Union budget are not sufficient to satisfy the liabilities resulting from borrowing linked to the NGEU, then – when all other measures to generate the necessary liquidity are insufficient – the European Commission is empowered, as a last resort, to require Member States to make resources available in their contributions to the EU budget to cover such a deficit.

cc) Though the borrowing on the part of the European Union and the rules on repayment appear somewhat at odds with the no-bailout clause enshrined in Art. 125(1) TFEU, Art. 125(1) TFEU ultimately does not rule out the application of the competence conferred in Art. 122 TFEU.

2. The 2020 EU Own Resources Decision does not affect the constitutional identity of the Basic Law in the sense of Art. 79(3) GG.

a) In its Order of 15 April 2021, the Senate found, in a summary examination, that it was highly unlikely that the overall budgetary responsibility of the Bundestag was affected by either the challenged ratifying Act or the 2020 EU Own Resources Decision. In the present decision, the Court upholds this assessment. Based on the findings at the oral hearing, it cannot be held that the 2020 EU Own Resources Decision results in obligations for the federal budget that substantially impair the budgetary powers of the Bundestag.

The 2020 EU Own Resources Decision does not create any permanent mechanisms that entail an assumption of liability for decisions taken by other Member States or structurally affect the Bundestag’s budgetary powers. Given that the 2020 EU Own Resources Decision is strictly limited to specific purposes, and the parliamentary opportunities to influence the decisions of the Federal Government with regard to the execution of the NGEU (cf. Art. 23(2) and (3) GG), the Bundestag retains sufficient influence in the decision-making process as to how the funds provided will be used.

The same applies to the obligation to provide additional financing set out in Art. 9(4) of the 2020 EU Own Resources Decision. This provision does not constitute an assumption of liabilities for the decisions made by other Member States or the European Commission; rather, it provides for a temporary pro rata advance that is subject to detailed requirements in the 2020 EU Own Resources Decision and for which the Bundestag has assumed full responsibility by adopting the ratifying Act.

Given the budgetary principle of annuality, a constitutional review of this issue must be based on the potential maximum burden per year rather than the total sum of (potential) liabilities that could be incurred until the year 2058. While the maximum potential effect on the federal budget would be between EUR 21 and 28 billion – a considerable amount and one that is significant in regard to political leeway – it would not have the effect of undermining the parliamentary budgetary powers.

b) In an overall consideration of other existing payment obligations and assumptions of liability of the Federal Republic of Germany in the context of the Economic and Monetary Union, there does not appear to be an impairment of the budgetary powers of the Bundestag. It is first and foremost for Parliament to decide, in balancing the current affected interests with the risks of mid-term and long-term guarantees, to what extent payment obligations and guarantees can tenably be assumed.

The oral hearing did not produce any evidence that, in an overall assessment of other existing payment obligations and assumptions of liability, the Bundestag had relinquished its budgetary powers by adopting the Act Ratifying the EU Own Resources Decision and that it is no longer “master of its own decisions”. However, given the existing payment obligations and assumptions of liability, the future financial leeway of the Bundestag has already significantly shrunk.

c) In light of these commitments, the Bundestag has an ongoing duty, in the context of its responsibility with regard to European integration, to monitor the use of funds from NGEU and the development of risks of liability arising from the programme and, when necessary, to take suitable measures to protect the federal budget.

III. A request for a preliminary ruling from the Court of Justice of the European Union pursuant to Art. 267(3) TFEU is not necessary. The present proceedings do not require an interpretation of Art. 122 and Art. 311 TFEU from the Court of Justice of the European Union. Based on a strict understanding of the 2020 EU Own Resources Decision, the Second Senate can neither hold that the measure evidently violates the principle of conferral, which is a precondition for an ultra vires review, nor that it violates the constitutional identity of the Basic Law. That rules out an identity review as well. There is also no reason to assume that the Court of Justice of the European Union would interpret the competences in Art. 122 and Art. 311(2) TFEU more narrowly than the Federal Constitutional Court. Against this background, the constitutional complaints would remain unsuccessful even after a referral.

Dissenting opinion of Justice Müller:

“To see the curtain down and nothing settled” seems to me a rather ill-suited approach to the effective protection of the fundamental right to democracy under Art. 38(1) first sentence GG.  And yet the Senate majority leaves all of the relevant questions of EU law unanswered, refuses to engage in the dialogue between European constitutional courts, accepts a violation of the responsibility with regard to European integration and signals a retreat from the substance of ultra vires review. Therefore, I regrettably cannot join in the decision.

1. First, the Senate majority correctly asserts that the European Union is generally prohibited from borrowing. The Senate majority goes on to list a number of concerns as to the existence of a competence in the Treaties for the borrowing authorised by Art. 5(1) subpara. 1(a) of the 2020 EU Own Resources Decision. Disregarding these concerns, the majority then limits its decision to the conclusion that “it cannot be clearly ruled out” that the borrowing set out in the 2020 EU Own Resources Act complies with the requirements of EU primary law. In doing so, the Senate majority fails to honour the very standard it is fond of reiterating, namely, that the manifest exceeding of one’s competences be determined on the basis of a “careful and meticulously reasoned interpretation of the law” in accordance with general principles.

The Senate majority correctly states that the category of ‘other revenue’ in Art. 311(2) TFEU cannot be used to circumvent the requirement that the European Union be financed through a system of own resources. Yet it is incomprehensible how the Senate majority’s conclusions in the present case can be reconciled with this requirement.

The fact that the contemplated borrowing in 2021 and 2022 is, respectively, more than double the contemplated general budget of the European Union for each of these years under the multiannual financial framework for 2021-2027 argues against the assertion that the authorisation to borrow can be reconciled with the mandated system of financing through own resources. The total budget under the multiannual financial framework until 2027 is EUR 1,074 billion, compared with contemplated total borrowing of EUR 750 billion.

Over the total time period of the multiannual financial framework, debt financing thus forms a ‘second pillar’ of nearly equal importance to financing through the own resources of the European Union. This suggests that Art. 5 of the 2020 EU Own Resources Decision does exceed the competences conferred in the Treaties and effectuates a fundamental change to the financial architecture of the European Union.

The Senate majority nevertheless limits itself to the finding that it is not manifestly incorrect to rely on the multiannual financial framework as the overall basis of the legal assessment rather than the individual budget years. Why the principle of annuality that normally applies to the EU budget does not apply in this case remains unclear. In any case, even based on the total time period of the multiannual financial framework, this assessment would need to resolve the issue of whether it is compatible with the general prohibition on borrowing and the requirement under Art. 311(2) TFEU that the European Union budget be financed from own resources when, with a volume of EUR 750 billion, the contemplated borrowing is only about a third less than the total EU budget.

A different conclusion does not result from the fact that the borrowed funds are strictly assigned to addressing the consequences of the COVID-19 crisis, or the reference to Art. 122 TFEU as the legal basis for the authorisation to borrow. The Senate majority itself views it questionable whether the factual circumstances in the present case meet the prerequisites of Art. 122(1) and (2) TFEU. In spite of the many stated reservations, the majority avoids actually deciding on which particular subsection of the treaty provision could in fact provide a legal basis for Art. 5 of the 2020 EU Own Resources Decision. This approach blurs the two subsections into a unified treaty competence and thereby fails to meet the required level of careful examination in the interpretation of Art. 122(1) and (2).

There are additional concerns, as pointed out by the Senate majority, regarding recourse to Art. 122 TFEU as a legal basis for Art. 5 of the 2020 EU Own Resources Decision that arise from the design of the NGEU.  These concerns argue against a finding that the contemplated measures are in fact aimed at addressing the consequences of the COVID-19 pandemic rather than at providing a general stimulus package: the distribution plan for the funds, their purpose and the duration of the distribution.  The required link between the consequences of the pandemic and the measures for digitalisation or for achieving climate neutrality provided for in the NGEU are not discernible. In the oral hearing, the economic experts confirmed these concerns. The Senate majority nevertheless once again limited itself to the finding that any exceeding of Art. 122 TFEU was “not manifestly obvious”.

In addition, the Senate majority is of the view that, assuming the factual prerequisites for the specific competence conferred in Art. 122 TFEU are met, this competence would allow the European Union to borrow up to the amount of the regular budget (which is to be funded through own resources).

Following the logic of the Senate majority, any competence conferred in the Treaty could be invoked to justify borrowing by the European Union for the purposes of carrying out that competence  so long as it does not exceed – when measured over a multiannual term – the total volume of own resources in the regular budget. The notion that the European integration agenda enshrined in primary law imposes a strict prohibition on borrowing for the regular budget and then, at the same time, opens the door to circumvent such prohibition by allowing the European Union – under the pretext of carrying out any of the competences conferred – to borrow supplementary revenue at whim appears absurd to me.

2. Given the Senate majority’s own significant doubts as to the conformity of the 2020 EU Own Resources Decision with EU primary law, it seems that, at a minimum, a referral to the Court of Justice of the European Union was necessary. A preliminary ruling from the Court of Justice for the European Union would provide a foundation for the Federal Constitutional Court to conduct a proper review as to whether Art. 5(1) subpara. 1(a) of the 2020 EU Own Resources Decision constitutes a manifest exceeding of competences and, consequently, whether there has been a violation of the rights of the complainants under Art. 38(1) first sentence. The Senate majority claims that requesting a preliminary ruling was unnecessary because it seemed unlikely that the Court of Justice would interpret Art. 122 or Art. 311(2) TFEU more narrowly than would the Federal Constitutional Court. Yet this conclusion is contradicted by the fact that no relevant case-law from the Court of Justice on this point exists and, moreover, by the fact that the Senate majority itself does not reach a binding interpretation of these provisions, but instead limits its review to the determination of whether the interpretation of Treaties on which the NGEU is based is “manifestly untenable”.

3. a) Having declined to request a preliminary ruling from the Court of Justice, the Senate majority is at pains to establish limits to borrowing by the European Union, and to that end establishes a set of criteria that it derives from the prohibition on circumventing the requirement to finance the European Union budget with own resources. I am not convinced that these criteria can effectively ensure that the requirement that the European Union be financed through own resources is respected. It is not clear how linking borrowing to a competence conferred in the Treaties contributes to enforcing the requirement that the primary financing of the European Union come from own resources.

b) By accepting the legality of the arrangements in Art. 5(1) subpara. 1(a) of the 2020 EU Own Resources Decision, the Senate majority opens the door to a fundamental change in the financial architecture of the European Union, as it allows the European Union to permanently move to a system that relies on both own resources and borrowing on a nearly equal footing. The budgetary structure of the European Union is visibly tilted in the direction of a fiscal and transfer union. While there may appear to be sound political arguments for doing so, that does not alter the fact that there are no indications that the current European integration agenda defined in Art. 310 ff. TFEU supports such a budgetary system. It is my firm conviction that the path to transforming the European Union into a fiscal and debt union can only be achieved through an amendment of the Treaties in the procedure set out in Art. 48 TEU.

c) The arguments that the European Union has borrowed in the past, or that the NGEU constitutes a one-time exception to address an unprecedented crisis, do not change this conclusion.

The past borrowing activities by the European Union are in no way comparable with the contemplated borrowing under Art. 5(1) subpara. 1(a) of the 2020 EU Own Resources Decision. Besides the fact that prior practice is not determinative as to the Decision’s conformity with EU primary law, prior borrowing has always been strictly limited to much smaller volumes. Moreover, Art. 5(1) subpara. 1(b) of the 2020 EU Own Resources Decision permits the largest portion of the borrowed funds (EUR 390 billion) to be distributed as non-repayable grants. This gives rise to redistributive effects that were not present with respect to past borrowing.

d) The claim of the Senate majority that the NGEU is “one-time instrument in reaction to an unprecedented crisis” and not “a step towards a fiscal union” is unconvincing in many respects. It is contradicted not only by the inadequate limitations on the use of NGEU funds to purposes that actually address the consequences of the COVID-19 pandemic, but also the general pattern of continuing the use of temporarily introduced instruments beyond the end of the respective crisis. The Senate majority also disregards the fact that the Federal Government, through a public statement by the Federal Minister of Finance in the Bundestag, acknowledged that the NGEU was “a necessary and overdue step in the direction of transforming the European Union into a fiscal union”. That a state secretary testifying in the oral hearing sought to distance the Federal Government’s position from the prior statement of his own head of ministry in no way renders the declaration made by the Federal Government in Parliament irrelevant.

4. In sum, the judgment rendered by the Senate majority does not meet the requirements for an effective ultra vires review in the context of Art. 38(1) first sentence GG. The Senate majority dispenses with the possibility of a request for a preliminary ruling from the European Court of Justice and permits a fundamental change in the financial architecture of the European Union without the necessary amendment of the Treaties (‘treaty amendment through the back door’).

5. The approach of the Senate majority in this specific case risks rendering constitutional review as to conformity with the division of competences between the EU and the Member states meaningless.

According to the established case-law of the Second Senate, finding a violation on the basis of the ultra vires doctrine requires a determination of a sufficiently qualified exceeding of competences, that is, one that is manifestly evident and structurally significant. However, this standard of review does not exempt the Federal Constitutional Court from the necessity of engaging the Court of Justice in dialog to clarify issues of EU law. When the Senate majority, from the outset, limits its review to a mere assessment of whether an EU measure manifestly exceeds competences, without taking the effort to engage in a careful and detailed analysis of EU law, it risks undermining the ultra vires review with far-reaching effect. Such is the case here. All of the decisive questions on the conformity of Art. 5(1) subpara. 1(a) of the 2020 EU Own Resources Decision with the requirements of EU primary law under Art. 311(2) and (3) and Art. 122(1) and (2) TFEU remain unanswered, leaving nothing settled.