The German court dismisses the judicial challenge against the EU fund

LONDON – The German constitutional court on Wednesday decided to dismiss judicial challenges to the EU’s recovery plan, effectively paving the way for the unprecedented stimulus to unfold across the region.

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

The measure provoked such a much-needed stimulus and came after a group of Eurosceptic citizens expressed concern that additional indebtedness could become a permanent feature in EU policy-making.

“Limits apply to the volume, duration and purpose of loans authorized by the European Commission, as well as to possible liabilities incurred by Germany,” the constitutional court said on Wednesday.

“In addition, the funds in question should be used exclusively to deal with the consequences of the Covid-19 crisis,” the court also said.

The German court’s statement highlights that the decision of the 27 heads of state in July is temporary. This detail is particularly important for Eurosceptics, who often worry about too much integration between the 27 EU member states.

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

A European official, who did not want to be appointed because of the sensitivity of the process, told CNBC on Monday that if all goes well, the first disbursements could happen in July.

Speaking to CNBC last week, Austrian Finance Minister Gernot BlümeI said: “I am convinced that there will be no delay in being able to issue these European bonds as well.”

Funding is particularly important for European nations that want to boost their economies after the pandemic. Although vaccination rates are spreading across the block, some countries remain closed or have severe restrictions behind a third wave of infections.

The euro continued to trade slightly lower against the US dollar after the announcement and ten-year Greek government bonds circled the flat line.