Big step for Germany on aid sharing, one small step for EU

The growing tsunami of soaring energy prices has finally forced Germany to act to quell the grumblings of the rest of the European Union.

Chancellor Olaf Scholz is ready to drop his opposition to joint borrowing at the EU level to cushion the blow of the crisis, reports Bloomberg News. Although it doesn’t sound like a “Hamiltonian leap” into federal debt that some enthusiasts hoped for during the Covid-19 crisis – when a reluctant Berlin gave the go-ahead to an unprecedented $724 billion stimulus fund euros ($702.5 billion) which offered subsidies – this is a positive step. Italian debt rallied after the announcement, while the euro pared its losses.

The reported structure approximates the so-called SURE program, which offered loans rather than grants of up to 100 billion euros for the support of workers during the pandemic, rather than the taboo recovery money that is still paid to people like Italy. promises of reform and investment are kept. In August, Scholz openly hailed SURE as a “pragmatic” solution that had helped more than 30 million Europeans.

What makes it such a big turnaround is that Germany resisted the idea for months, implying it wasn’t justified – even in the face of outcry from the rest of the EU over of its own domestic energy aid plan of up to 200 billion euros. The enormous size of the plan, coupled with Berlin’s year-round “nein” for more ambitious burden-sharing, has led EU Commissioners Thierry Breton and Paolo Gentiloni to warn that such beggar-and-see measures could undermine solidarity and peace. EU unit. Hungarian Prime Minister Viktor Orban, with a little less taste, called it “cannibalism”.

It also reflects the need for urgent solutions to Vladimir Putin’s escalating war and natural gas cut as a painful recession looms. Seven months after Russia invaded Ukraine, and despite surprising unity on sanctions, EU leaders have failed singularly to cover themselves in glory by releasing financial support to cushion the fallout at home. Leaders’ summits have come and gone with lots of ideas — like capping gas prices — but few details. As citizens are increasingly expected to do their part to turn down the thermostat and reduce energy demand, and with business bankruptcies on the rise, the cost of inaction is too high .

“If there was ever a time for ‘more Europe’, this is it,” European Parliament President Roberta Metsola said last month.

So if more money is on the way, what could it be spent on? A new SURE-like initiative is unlikely to serve as a direct tool to support workers, as labor markets remain open to business. Nils Redeker, deputy director of the Jacques Delors Center at the Hertie School, believes the aim must be to preserve the EU’s single market and support the huge investment needs, such as energy infrastructure, which have become vital this year. . Underinvestment in supply chains during the pandemic has compounded current inflationary pressures.

A more targeted guide to how the money can help could even be found in the EU’s ‘Fit for 55’ plan setting out its ambitious climate goals. While this decades-long energy transition plan was unveiled over a year ago and seems quite anachronistic in a world where more coal is being burned to replace Russian gas, it includes specific instruments to help protect consumers against rising energy prices. This “social climate fund”, initially designed as a cushion of 72 billion euros for vulnerable households and to finance more energy efficient buildings, could be revamped and launched earlier to adapt to the current crisis, argues Elisabetta Cornago of the Center for European Reform.

This would align with the International Monetary Fund’s call for countries to remain “laser focused” on targeting financial support to those who need it most. After the fiscal reality of the current crisis hit the UK, fiscal solidarity now seems to be hitting Germany. It’s not a Hamiltonian jump, but it’ll do.

More from Bloomberg Opinion:

• A European crisis is approaching. What kind will it be? : Tyler Cowen

• 44 European leaders gathered. What could go wrong? : Andreas Kluth

• The reality of winter is sinking for European leaders: Lionel Laurent

This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.

Lionel Laurent is a Bloomberg Opinion columnist covering digital currencies, the European Union and France. Previously, he was a reporter for Reuters and Forbes.

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