German €200bn energy support plan sparks ‘animosity’ within EU

[beijingwalker]

German €200bn energy support plan sparks ‘animosity’ within EU​

Scale of domestic aid prompts backlash as bloc tries to forge united response to high prices

Alice Hancock and Sam Fleming in Brussels
October 1 2022

Germany’s pursuit of a massive borrowing package to help its economy withstand the energy crisis has heightened tensions among EU member states as they struggled to forge a common approach on lowering gas and electricity prices at meetings in Brussels.

The €200bn plan, announced by Berlin on Thursday, was described by German chancellor Olaf Scholz as a “double ka-boom” that would help consumers from poor households as well as industry pay increasingly high energy bills this winter. But the scale of the support and the timing of the announcement on the eve of an energy ministers’ emergency meeting in Brussels on Friday provoked a backlash within the EU. Several diplomats argued that Berlin’s use of its fiscal firepower while other capitals struggled to finance support clashes with efforts to forge a unified EU response against Russia’s weaponisation of energy exports.

An EU diplomat said the German package had prompted “animosity” just as the bloc was trying to find a common approach to “tackle the problem at its roots”. Berlin is also resisting the imposition of a gas price cap that is supported by more than half of the EU’s member states.

Ministers on Friday agreed on three proposals to lower electricity prices for consumers and businesses, including a 5 per cent mandatory reduction in peak electricity consumption, a windfall levy on fossil fuel companies and a €180/MWh cap on the price of electricity generated by non-gas power producers with revenues above that being recycled to consumers. But after intense negotiations there was no agreement on a gas price cap, which several member states including Germany fear could push up demand and divert gas that the EU desperately needs to other regions that are willing to pay more for supplies.

Mario Draghi, the outgoing Italian prime minister, said after Germany’s announcement that “faced with the common threats of our times, we cannot divide ourselves according to the space in our national budgets”. Guido Crosetto, a top adviser to Giorgia Meloni of the far-right Brothers of Italy party which took the largest share of the vote in the country’s recent election, lashed out directly at Berlin’s energy policy. “It is an act, precise, deliberate, not agreed, not shared, not communicated, which undermines the reasons for the union,” he said.

Guido Crosetto, a top adviser to Giorgia Meloni of the far-right Brothers of Italy party, says Berlin’s energy policy ‘undermines the reasons for the union’ © Antonio Masiello/Getty Images

Germany’s plan also provoked questions within the European Commission. Thierry Breton, the EU’s internal market commissioner, said on Twitter that while Germany was able to afford to borrow €200bn on financial markets, some other EU member states could not do the same, as he called for close attention to the implications for the single market. “We need to reflect urgently on how to offer member states — which do not have this fiscal room for manoeuvre — the possibility of supporting their industries & businesses,” he said.

Pitched in Berlin as a “protective shield” for industry and households, Scholz’s €200bn plan will be financed through new borrowing and channelled through the reactivated Economic Stabilisation Fund, an off-budget facility that was set up in 2020 to help companies survive the Covid-19 lockdowns. Robert Habeck, Germany’s economy minister, defended Berlin’s plan at the Brussels meeting, saying it was in line with the need for European solidarity and pointing out that other member states had already undertaken major interventions to curb energy costs. “We are doing the same as other countries long ago have done,” he said. Karel Hirman, Slovakia’s economy minister, said Germany was “destroying our common market”.

Hirman said the whole of the EU benefited from Slovak products such as fertilisers which depend on gas in the manufacturing process. “We don’t have the financial resources for these huge subsidies,” he told the Financial Times, adding that high energy prices could lead to the country’s economic collapse. Claude Turmes, Luxembourg’s energy minister, on Friday called on the European Commission to update its state aid rules in order to stop “this insane race from different governments to outcompete other governments in such a difficult moment in Europe . . . and stop infighting among ourselves.”

Berlin’s opposition to a gas price cap, alongside the Netherlands and Denmark, has prompted frustration from 15 EU countries, including France, which wrote to the commission this week asking it to speed up work on such a measure. Susanne Ungrad, spokeswoman for the economy ministry, said on Friday morning that Berlin did not support the idea of a “rigid price cap” because there was a risk that it would not be possible to buy enough gas on global markets, “which would be counter-productive”.

Germany did support an EU idea of forming a European consortium to buy gas on world markets, she added. A senior EU diplomat said the timing of Germany’s package had been seen as a “sign of intransigence” but that Berlin should support the gas price cap because if the spending plan “was applied in parallel with a price cap, the cost for the German government would be halved by €100bn”.

German €200bn energy support plan sparks ‘animosity’ within EU

Scale of domestic aid prompts backlash as bloc tries to forge united response to high prices

www.ft.com

 

[beijingwalker]

EU industry chief says will review 200-bln-euro German package​

By Foo Yun Chee

European Internal Market Commissioner Thierry Breton speaks at a news conference in Brussels, Belgium, September 19, 2022. REUTERS/Yves Herman/File Photo

BRUSSELS, Sept 30 (Reuters) - Germany's 200 billion euro ($196 billion) plan to protect companies and households from soaring energy prices will be scrutinised by the European Commission, EU industry chief Thierry Breton said on Friday.

The German plan, which includes a gas price brake and a cut in sales tax for the fuel, came as gas and electricity costs jumped, caused largely by a collapse in Russian gas supplies to Europe, which Moscow has blamed on Western sanctions following its invasion of Ukraine in February.

"I have taken note of Germany's 200 billion euro plan to tackle energy-price surge — which we will carefully review," Breton said in a tweet.

He called for vigilance to safeguard the level playing field in the 27-country bloc and suggested other EU countries may need help to tackle the energy crisis.

"While Germany can afford to borrow 200 billion euros on financial markets, some other EU Member States cannot," Breton tweeted. "We need to reflect urgently on how to offer Member States — which do not have this fiscal room for manoeuvre — the possibility of supporting their industries & businesses."

EU industry chief says will review 200-bln-euro German package

Germany's 200 billion euro ($196 billion) plan to protect companies and households from soaring energy prices will be scrutinised by the European Commission, EU industry chief Thierry Breton said on Friday.

www.reuters.com

 

[beijingwalker]

Now it's everyone for themselves in EU.

 

[beijingwalker]

Tensions flare over the EU’s new irresponsible big spender: Germany​

Countries say Berlin has a burden of responsibility not just to pour billions into its own economy — when German mistakes created the crisis.
OCTOBER 3, 2022 8:18 PM

What a difference a decade makes.

Ten years ago, when Europe was in the throes of the eurozone crisis, Germany led the drive for austerity. Now the rest of Europe is fuming about Germany’s heavy spending on energy subsidies that they fear could exacerbate the Continent's politically explosive rich-poor divide. It hardly helps these growing tensions that it was Berlin's misguided dependence on Russian gas that helped trigger the bloc's energy crisis in the first place.

Dissent is growing in the EU — particularly in heavyweights such as Italy and France — about Germany’s massive €200 billion package announced last week to cushion consumers and businesses from the full effects of the energy crisis. These grievances now look likely to flare at Friday’s EU summit in Prague, when leaders will tackle the issue of rising energy costs and their economic ramifications.

“Germany has shown a big middle finger to the rest of Europe with this package,” said one EU official. “That has really raised the temperature with the other countries.”

Germany's deep pockets are a long-running bone of contention that also stoked problems during the coronavirus pandemic, when countries poured billions in rescue funds into their economies. The criticism is that Germany's massive financial firepower allows it to bail out its economy, while poorer nations crack, opening up major divisions in the single market as German companies win a state-funded advantage over rivals elsewhere.

Nations say Germany has a burden of responsibility to show solidarity and not just look after itself — not least because of Berlin's role in helping Gazprom establish dominance in Europe, and because Germany's pursuit of new gas supplies is driving prices up for everyone. "The Germans are more worried about the supply of gas than the price, but for the other 26 countries it is not like that," Italian Energy Minister Roberto Cingolani told Rai TV on Sunday.

In a slap on the wrist for the German go-it-alone approach, the European Commission on Monday also called on countries to coordinate their rescue measures and avoid undermining the single market. “Actions taken at national level have important spillovers on other member states, so a coordinated approach at the European level is more crucial than ever,” EU Economy Commissioner Paolo Gentiloni said on Monday following a meeting of finance ministers.

Even Italy's outgoing Prime Minister Mario Draghi issued a rare rebuke of Germany. “We can’t divide ourselves according to our fiscal room for maneuver, we need solidarity,” he said late Thursday.

Guido Crosetto, co-founder of Brother of Italy, the party which is expected to lead the next Italian government, said on Twitter that Germany’s decision “not agreed, not shared, not communicated, threatens at the roots the rationale of the Union.”

Paris also sounded annoyed.

“It is essential that we preserve the level playing field between the eurozone member states and between member states in general,” said France’s Finance Minister Bruno Le Maire, on his way into a meeting of eurozone finance ministers in Luxembourg Monday. “If there is no consultation, if there is no solidarity, if there is no targeted support for business, if there is no respect for the level playing field, we risk the fragmentation of the eurozone.”

Adding fuel to the fire, the fact that Germany is blocking calls for an EU-wide gas cap to tackle the energy crisis is also not bolstering its cause among other countries.

Old habits die .... fast​

Having been the poster boy for strict fiscal rectitude, insisting that austerity measures were part of the conditions of bailouts for countries such as Greece, Portugal and Ireland during the eurozone crisis, Berlin is now presiding over an eye-watering spending package. Even Germany’s own Federal Audit Court criticized the financing of the plan, as POLITICO first reported, which appears to fly in the face of decades of German fiscal conservatism.

The announcement of the new package comes just weeks after German Finance Minister Christian Lindner told POLITICO in an interview that Germany and the EU must return to strict fiscal discipline.

But when it comes to the energy largesse, Lindner defended the move in Luxembourg on Monday. “The measures are proportionate to the German economy and until the year 2024, and in line with what others in Europe are doing,” he said.

Technically, the spending will be categorized under a COVID-era economic stabilization fund, so that it is compatible with Germany’s own national debt rules.

Germany’s decision to unveil an ambitious support package recalls the start of the COVID pandemic more than two years ago, when then-Chancellor Angela Merkel wanted to press ahead with plans to support its own economy. That led to accusations that Berlin was distorting competition across Europe because not all EU countries could afford such measures. Ultimately, the EU reacted by setting up its historic €750 billion coronavirus recovery fund, but the German government has repeatedly insisted that this was a “one-off” solution that won’t be repeated.

Then, like now, Germany had the fiscal room to shore up its economy. Others didn’t.

As French Commissioner Thierry Breton put it on Twitter: “While Germany can afford to borrow €200 billion on financial markets, some other member states cannot. We need to reflect urgently on how to offer member states — which do not have this fiscal room for manoeuvre —the possibility of supporting their industries & businesses.”

Little sympathy for the Germans​

Looming over the increasingly fractious debate about Germany’s newly discovered profligacy is the upcoming reform of the EU’s Stability and Growth Pact. The pact, the bedrock of the EU’s fiscal surveillance system, was put on ice during the pandemic. But the Commission is now poised to announce a revamp of the system, which would come into effect from 2024.

While the twin bedrocks of the EU’s financial rule-book will remain — that countries need to adhere to public deficit of 3 percent of gross domestic product and a 60 percent debt to GDP ratio — the pact will include a new element of flexibility that seemed anathema a decade ago. In particular, the Commission is proposing to remove the obligation for countries with a debt level higher than 60 percent of GDP to reduce their debt annually by 1/20th. Countries would also be given more time to reduce their debt level.

Much of the political momentum for revision of the Stability and Growth Pact rules has come from Paris. Last December, French President Emmanuel Macron and his Italian counterpart Mario Draghi called for the EU’s fiscal rules to be reformed to reflect “a new growth strategy” and ensure “enough key spending for the future.” The incoming Italian government is expected to echo the Draghi position, while even countries that flew the flag of austerity, such as the Netherlands, are tempering their demands for fiscal prudence.

There are also flashing warning signs about the state aid implications of the German bumper energy splash. The European Commission has stressed that it is up to any member state that introduces the measure to determine whether the spending constitutes state aid, and to notify this to the Commission. But a Commission official also stressed the importance of the level playing field and “horizontal rules that are applicable to all.” There is a temporary crisis framework in place, which allows flexibility under state aid rules to allow countries to help shoulder the economic burden created by the war in Ukraine.

Margrethe Vestager, the commissioner in charge of competition policy, pledged to review the state aid framework this month to allow countries to counter the energy price crisis. It is unclear yet whether Berlin’s package would be assessed under the new framework, currently under consultation between Brussels and EU countries, or the old one.

The issue is likely to come to a head at an EU summit later this week, when leaders will discuss how to devise an EU-wide response to the energy crisis, and deal with the economic fallout of the Ukraine war.

As Europe’s largest economy, what happens in Germany matters. But Berlin may find that it has limited sympathy from other EU countries at a time when many believe that a united response is the only way to tackle the enormous economic challenges expected this winter.

Andrea Ferrazzi, a senator from Italy's Democratic party, was categorical about the stakes.

He noted on Facebook: "If it continues moving in this direction we won’t have a united Europe anymore, but a hegemony of the strongest counties, with Germany first, which would weaken not only the EU but all the others.”

Tensions flare over the EU’s new irresponsible big spender: Germany

Countries say Berlin has a burden of responsibility not just to pour billions into its own economy — when German mistakes created the crisis.

www.politico.eu