Pressure is mounting on Germany over its refusal to consider EU-level instruments on joint borrowing to tackle the current inflation crisis, with Spain warning that it risks jeopardising the single market.
Meanwhile, Germany’s move ramps up pressure on traditionally fiscally conservative governments to follow Berlin’s suit and protect their own economies.
Some of Europe’s biggest member states – Italy, France and Spain – are amongst those unhappy with Germany’s stance on joint measures.
Although Germany has since moved on to other EU ideas for joint action, with a recent u-turn of joint gas purchasing seen as an ‘olive branch’ to assuage critics, Berlin is largely sticking to its guns to spend up to €200 billion to relieve its economy from the burden of surging energy prices while remaining unwilling to do the same on the EU level.
A €200 billion straw to break the camel's back?
The European outrage over the German government’s energy package might provide the political momentum for another European fiscal response to the economic crisis triggered by the Russian war.
While there is a need to consider the different “positions and difficulties” in EU countries, it cannot come at a cost for other bloc members, the Spanish Minister for Ecological Transition, Teresa Ribera, told reporters in Brussels on Wednesday (12 October).
“Germany and the other Member States, which were very dependent on Russian gas, need the understanding of others, but not at the cost of endangering others,” EURACTIV’s partner EFE reported the Spanish minister saying.
In the meantime, EU capitals, including Madrid and Paris, are waiting for the EU executive to give its verdict of Berlin’s plan.
“It is the Commission’s role is to ensure that there are no market distortions,” a French government source told EURACTIV.
Joint borrowing
The European Commission and most member states are currently eying joint borrowing on the EU level as one of the main options to tackle the crisis.
The call for joint borrowing was triggered by an op-ed by the Commissioners for Economy and Internal Market, Paolo Gentiloni and Thierry Breton, last week and has since gained considerable support from Europe’s biggest member states – France, Italy and Spain.
As a second round of the €750 billion heavy Recovery Fund passed during the pandemic is currently unlikely and would take too long to adopt, the pro-joint borrowing coalition is pushing for a less controversial option.
The envisioned scheme would allow the European Commission to borrow money on cheap terms on the international market and forward it on the same conditions to member states with a lower credibility ranking than the institution.
The new instrument is likely to be modelled after the SURE mechanism proposed as one of the first EU-level measures during the pandemic; an EU lending set up where the Commission raised €100 billion from markets. The borrowing was backed by a system of guarantees from member states to help with the budgetary burden of national authorities’ efforts to support workers and protect jobs.
In its new iteration, the scheme would ensure that EU countries with a lower rating can access cheaper loans. However, it would leave richer countries like France or Germany, which already have access to favourable financing conditions in the cold.
While Italy, for instance, is currently paying 4.7% for its 10-year bonds, the European Commission only pays 3.2%.
However, among the countries who have already outlined their opposition to the new mechanism, like the Netherlands or Finland, is also the bloc’s biggest economy: Germany.
While Chancellor Olaf Scholz once praised the EU Recovery Fund as a “Hamiltonian moment” for the EU that would open the gates for a fully-fledged fiscal union, the current government has taken a more hawkish stance on the issue.
Finance Minister Christian Lindner has made it clear on multiple occasions that the joint borrowing during the COVID-19 pandemic would be a one-time thing and dismissed calls for introducing the new scheme, at least for now.
How frugal is frugal?
However, Berlin’s move has resulted in increased pressure to do the same in traditionally ‘frugal’ EU governments, which may, as a result, soften their stance at the bloc level.
Austrian industry, for example, which makes up about 28% of the GDP and is closely linked to its neighbour, now wants a German-style mega aid package.
“Austria must follow this [German] example to ensure competitiveness,” explained Christoph Walser, president of the Tyrolean chamber of commerce.
At the same time, the highly influential commerce chambers from almost every state in the country voiced concerns over Germany.
“Competitiveness vis-à-vis Germany, the most important sales market for our commercial and craft enterprises abroad, is at stake,” highlighted Renate Scheichelbauer-Schuster, trade lead at the Austrian chamber of commerce.
According to industry representatives, Germany’s massive €200 billion package gives it security to plan “well into 2024”, something they say Austrian companies “desperately need.”
The industry has already been backed by the opposition social democrat SPÖ, currently riding high on a five-point-strong polling lead.
Source: euractiv.com
