MNI SOURCES: EU Covid Funds Seen On Time, At Long-Term Risk

Germany's Constitutional Court is likely to allow ratification of an EU law underpinning the European Union's EUR750 billion Recovery and Resilience Fund fairly soon, but while European officials say the legislation has been designed with court challenges in mind, they acknowledge a risk that a legal question mark could hang over the post-Covid reconstruction programme into next year.

While the Court last month suspended ratification of the EU Own Resources legislation, officials in both Brussels and other European Union capitals remain confident that any delay should be short, and that the RRF should be on track to start borrowing by July.

"The legal basis for Next Generation EU was crafted very carefully … we feel very well prepared," one official familiar with the original drafting of the legislation told MNI, adding that not only did the GCC tend to avoid lengthy legal deliberations but that in this case it risked holding up a key measure endorsed by a large majority of Germany's parliament.

Plaintiffs who lodged the legal action with the court claim the Own Resources legislation violates EU treaties by opening the way to joint eurozone borrowing. But EU officials point out that the fund is a one-off, targeted crisis measure.

The Next Generation EU plan to rebuild Europe in the wake of the pandemic also involves no mutualisation of debt and member states are only liable for their own share of repayments. The long duration of planned lending as well as the fact that the amounts involved do not involve a significant risk to the German budget are also important EU arguments.

LONGER-TERM RISK

But, despite a guardedly optimistic mood among EU officials that a lengthy delay to the RRF's schedules for borrowing and disbursements can be avoided, with Own Resources ratification completed by late June, one noted that the legal case could still pose longer-term problems.

"I guess people are hoping for a benign scenario," the official said, saying that the German court could lift its injunction to allow ratification, allowing Next Generation EU to launch later this year, but that a final ruling could take up to a year.

The fear that an adverse ruling for the EU might provoke a constitutional crisis may also focus the minds on the GCC, which has previously challenged key European Central Bank policy measures, officials said.

"The people commenting on this usually point out that the Constitutional Court likes to make noise but doesn't follow through," one of the officials said.

Sixteen out of the 27 EU member states have now ratified the legislation, but it is not just Germany where the timeline for approval is unclear. The Netherlands' Senate is due to discuss it later this month, with controversy around the Brexit Adjustment Reserve a sore point for some Dutch politicians. Ratification prospects in Hungary and Poland also remain uncertain.