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‘Spirit of solidarity’: Germany to ‘significantly’ raise EU budget contribution

Chancellor Angela Merkel on Thursday said Germany was ready to make "significantly higher" EU budget contributions to help the bloc cope with fallout from the coronavirus pandemic.

'Spirit of solidarity': Germany to 'significantly' raise EU budget contribution
Members of Germany's government discussing the EU budget on Thursday. Photo: DPA

Merkel was addressing lawmakers in Berlin ahead of crunch talks between EU leaders on a giant rescue package for the European Union, that has reignited a bitter north-south divide between member states.

“In the spirit of solidarity, we should be prepared to make completely different, that is to say significantly higher contributions to the European budget over a set period,” Merkel said in her speech.

“Because we want all EU member states to be able to recover economically.”

But she said the European budget had to be the cornerstone “for such a stimulus programme” for the club's 27 members.

“The European budget has for decades been the tried and tested instrument for common tasks in the EU.”

READ ALSO: Germany 'ready for European solidarity' but won't back corona bonds

The bloc's leaders will later on Thursday sign off on a €540 billion emergency package and discuss plans for a European Recovery Fund to rebuild the bloc's economy after the crisis.

Germany believes the proposed fund can be financed by the new seven-year EU budget which is currently under negotiation.

Building the recovery fund into the budget for 2021-2027 gives some reassurance to northern countries by putting it into an established framework.

But it adds further complication to an already thorny debate about the EU's spending priorities in the coming years.

It also raises the possibility that eastern European countries will be asked to give up development money to pay for the coronavirus recovery in southern nations like Spain and Italy that have been badly hit by the pandemic.

Merkel again rebuffed Italy's calls for so-called coronabonds, a controversial pooled EU debt instrument that would allow more indebted countries to borrow money at lower interest rates.

READ ALSO: Coronabonds: Germany urged to back joint EU debt to fight crisis

But nations like Germany and the Netherlands fear being on the hook for bills run up by neighbours they see as lax with their money and budgets.

Merkel said creating shared EU debt instruments would require changes to EU treaties and approval from national parliaments.

Going down that road would be “time consuming and difficult”, she said.

“It's important to act quickly now.”

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COVID-19

Court turns down AfD-led challenge to Germany’s spending in pandemic

The German Constitutional Court rejected challenges Tuesday to Berlin's participation in the European Union's coronavirus recovery fund, but expressed some reservations about the massive package.

Court turns down AfD-led challenge to Germany's spending in pandemic

Germany last year ratified the €750-billion ($790-billion) fund, which offers loans and grants to EU countries hit hardest by the pandemic.

The court in Karlsruhe ruled on two challenges, one submitted by a former founder of the far-right AfD party, and the other by a businessman.

They argued the fund could ultimately lead to Germany, Europe’s biggest economy, having to take on the debts of other EU member states on a permanent basis.

But the Constitutional Court judges ruled the EU measure does not violate Germany’s Basic Law, which forbids the government from sharing other countries’ debts.

READ ALSO: Germany plans return to debt-limit rules in 2023

The judgement noted the government had stressed that the plan was “intended to be a one-time instrument in reaction to an unprecedented crisis”.

It also noted that the German parliament retains “sufficient influence in the decision-making process as to how the funds provided will be used”.

The judges, who ruled six to one against the challenges, did however express some reservations.

They questioned whether paying out such a large amount over the planned period – until 2026 – could really be considered “an exceptional measure” to fight the pandemic.

At least 37 percent of the funds are aimed at achieving climate targets, the judges said, noting it was hard to see a link between combating global warming and the pandemic.

READ ALSO: Germany to fast-track disputed €200 billion energy fund

They also warned against any permanent mechanism that could lead to EU members taking on joint liability over the long term.

Berenberg Bank economist Holger Schmieding said the ruling had “raised serious doubts whether the joint issuance to finance the fund is in line with” EU treaties.

“The German court — once again — emphasised German limits for EU fiscal integration,” he said.

The court had already thrown out a legal challenge, in April 2021, that had initially stopped Berlin from ratifying the financial package.

Along with French President Emmanuel Macron, then chancellor Angela Merkel sketched out the fund in 2020, which eventually was agreed by the EU’s 27 members in December.

The first funds were disbursed in summer 2021, with the most given to Italy and Spain, both hit hard by the pandemic.

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