50% Off! Beat the market in 2025 with InvestingProCLAIM SALE

Pressure on Germany as energy crunch revives EU divisions over joint debt

Published 10/04/2022, 03:57 AM
Updated 10/04/2022, 01:02 PM
© Reuters. FILE PHOTO: European Union flags flutter outside the EU Commission headquarters in Brussels, Belgium, September 28, 2022. REUTERS/Yves Herman

By Jan Strupczewski and Gabriela Baczynska

BRUSSELS (Reuters) - Two top European Union officials on Tuesday called for joint borrowing to help the 27-nation bloc navigate the energy crunch together, after Germany faced criticism for going its own way with huge subsidies its peers could never afford.

The energy price crisis - aggravated by Russia slashing gas supplies to the EU following Western sanctions over Moscow's war against Ukraine - is threatening recession in Europe as it recovers from the COVID pandemic.

Scrambling to respond, EU leaders are set to ask the bloc's executive arm on Friday to work out how to tackle soaring inflation through a cap on gas prices, funded by joint borrowing.

But Germany, Denmark and the Netherlands have opposed a price cap, citing concerns over security of supply. They are also against joint borrowing - an echo of the EU's long-standing divisions that have come to surface again over the twin energy and inflation crises.

Germany has instead raised eyebrows by announcing a massive 200 billion euro ($198 billion) support package for its businesses and households, dwarfing aid announced by other major EU economies - 67 billion euros in the case of France, and 68 billion euros in Italy.

"It's good to look more at the German state aid while discussing the EU price cap. They owe us here. Either the cap, or something sensible on joint gas purchases or on shared financing," said one EU diplomat.

The head of the EU executive, European Commission President Ursula von der Leyen, warned last week that any emergency measures must not damage the bloc's single market and that it was "paramount" to keep a level playing field.

On Tuesday two of her team - European Economic Commissioner Paolo Gentiloni and Internal Market Commissioner Thierry Breton - went further, saying new joint borrowing could follow the model of shared debt issued in the pandemic to subsidise jobs.

RACE FOR SUBSIDIES

"It is more important than ever that we avoid fragmenting the internal market, setting up a race for subsidies and calling into question the principles of solidarity and unity that underpin our European project," the two wrote in an op-ed in the Irish Times.

"There is only one possible response: that of a Europe of solidarity. In order to overcome the fault lines caused by the different margins of manoeuvre of national budgets, we must think about mutualised tools at the European level."

As a model, they pointed to the bloc's pandemic jobs scheme SURE, under which the EU jointly borrowed 100 billion euros at very low cost and lent the money - rather than handing it out for free - to governments to save jobs.

France sided with that, saying a shared EU economic response was needed. But Germany quickly reiterated its opposition to sharing debt, saying that would not in the long run help competitiveness or financial sustainability of countries.

Denmark and the Netherlands are also strongly against joint debt, as they had been during 2020 negotiations on EU stimulus to lift economies from the COVID malaise.

© Reuters. A general view of pipelines at the gas trading company VNG AG in Bad Lauchstaedt, Germany July 28, 2022. REUTERS/Annegret Hilse

Ahead of national EU leaders' talks on the matter in Prague on Thursday and Friday, another EU diplomat said joint debt was not needed: "I don't think that's seriously under consideration at this stage."

($1 = 1.0141 euros)

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.