At the end of March, investors absorbed an intervention by the German Constitutional Court which delayed the ratification by this country of the 750 billion euro stimulus fund of the NextGeneration EU (NGEU) budget. All 27 Member States must ratify it.
The challenge comes from German academics who, it seems, oppose the size and extended maturity of EU borrowing to finance economic recovery after the short-term emergency of the pandemic through investment long term in green and digital technologies. The complainants see it de facto fiscal union.
It’s a reminder, suggests Reinhard Cluse, an economist at UBS, that all steps towards European integration and burden sharing are – and likely will remain – subject to intense legal scrutiny in Germany.
A delay of a few weeks would not disturb investors too much. But if it seemed likely that Germany would not ratify the NGEU budget, then the turnaround in sentiment against heavily indebted peripheral sovereigns could be brutal.
Carsten Brzeski, global macro manager at ING, and Antoine Bouvet, senior rate strategist, specify: “At this stage, it is impossible to say how the injunction and a possible lawsuit will evolve.