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What a difference a decade makes.
Ten years ago, when Europe was mired in the eurozone crisis, Germany led the austerity drive. Now the rest of Europe is outraged by Germany’s heavy spending on energy subsidies, which they fear could exacerbate the continent’s politically explosive rich-poor gap. It hardly helps with these mounting tensions that it was Berlin’s misguided reliance on Russian gas that helped start the bloc’s energy crisis in the first place.
Dissent is growing in the EU – particularly in heavyweights like Italy and France – over Germany’s massive €200 billion package announced last week to cushion consumers and businesses from the full impact of the energy crisis. Those grievances are now likely to flare up at Friday’s EU summit in Prague, when leaders will tackle rising energy costs and their economic impact.
“Germany gave the rest of Europe a big middle finger with this package,” said an EU official. “That really raised the temperature with the other countries.”
Germany’s deep pockets are a long-standing bone of contention that also fueled troubles during the coronavirus pandemic as countries poured billions in bailout money into their economies. The criticism is that Germany’s massive financial firepower is allowing it to bail out its economy while poorer nations collapse and open up major divisions in the domestic market as German companies gain a state-funded advantage over other competitors.
Nations say Germany has a responsibility to show solidarity and not just look out for itself — not least because of Berlin’s role in helping Gazprom establish dominance in Europe and because Germany’s quest for new gas supplies is pushing prices for everyone in the drives up. “Germans are more concerned about gas supply than price, but it’s not the case for the other 26 countries,” Italy’s Energy Minister Roberto Cingolani told Rai TV on Sunday.
As a slap in the face for Germany going it alone, the EU Commission also called on countries on Monday coordinate their rescue efforts and avoid undermining the single market. “Measures taken at national level have a significant impact on other member states, so coordinated action at European level is more important than ever,” said EU Economy Commissioner Paolo Gentiloni on Monday after a meeting of finance ministers.
Even Italy’s outgoing Prime Minister Mario Draghi delivered a rare rebuke to Germany. “We can’t split up according to our fiscal space, we need solidarity,” he says said late Thursday.
Guido Crosetto, co-founder of Brother of Italy, the party expected to lead the next Italian government, said on Twitter that Germany’s decision “unagreed, undivided, uncommunicated, threatens the fundamental principles of the union at the root.” “.
Paris also sounded annoyed.
“It is important that we maintain a level playing field between eurozone member states and between member states in general,” French Finance Minister Bruno Le Maire said on his way to a meeting of eurozone finance ministers in Luxembourg on Monday. “If there is no consultation, if there is no solidarity, if there is no targeted support for businesses, if there is no respect for a level playing field, we risk fragmenting the eurozone.”
The fact that Germany is blocking calls for an EU-wide fuel cap to deal with the energy crisis adds fuel to the fire and does not strengthen its cause in other countries either.
Old habits die…quickly
After being the poster child for strict fiscal discipline and insisting austerity was part of the terms of bailouts for countries like Greece, Portugal and Ireland during the eurozone crisis, Berlin is now leading a stunning spending package. Even the German Federal Audit Office criticized the plan’s funding, POLITICO first reported, which seems to contradict decades of German budgetary 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 energy generosity, Lindner defended the move on Monday in Luxembourg. “The measures are proportionate to the German economy and by 2024 and are in line with what others are doing in Europe,” he said.
Technically, the spending will be classified into a COVID-era economic stabilization fund, making it compatible with Germany’s own sovereign debt rules.
Germany’s decision to come up with an ambitious aid package is reminiscent of the start of the COVID pandemic more than two years ago, when then-Chancellor Angela Merkel looked to press ahead with plans to support its own economy. This led to accusations that Berlin was distorting competition across Europe because not all EU states could afford such measures. Ultimately, the EU responded by setting up its historic €750 billion Corona recovery fund, but the German government has repeatedly insisted that this is a “one-off” solution that will not be repeated.
Then as now, Germany had the fiscal leeway to support its economy. Others don’t.
As French Commissioner Thierry Breton put it on Twitter: “While Germany can afford to borrow €200 billion on the financial markets, some other member states cannot. We urgently need to think about how we can offer Member States that do not have this fiscal space the opportunity to support their industries and companies.”
Little sympathy for the Germans
The forthcoming reform of the EU Stability and Growth Pact looms over the increasingly ambivalent debate about Germany’s newfound prodigality. The pact, the bedrock of the EU budgetary surveillance system, has been put on hold during the pandemic. But the Commission is now ready to announce an overhaul of the system that would come into effect from 2024.
While the two cornerstones of the EU’s financial rulebook remain in place – that countries must meet a public deficit of 3 percent of gross domestic product and a debt ratio of 60 percent of GDP – the pact will introduce a new element of flexibility that seemed anathema a decade ago . In particular, the Commission proposes to exempt countries with a debt level of more than 60 percent of GDP from the obligation to reduce their debt by 1/20 per yearth. Countries would also be given more time to reduce their debt.
Much of the political impetus for revising the rules of the Stability and Growth Pact came from Paris. Last December, French President Emmanuel Macron and his Italian counterpart Mario Draghi called for a reform of the EU’s fiscal rules to reflect “a new growth strategy” and ensure “sufficient key spending going forward”. Italy’s new government is expected to align itself with the Draghi position, while even countries that have flown the austerity banner, like the Netherlands, are softening their calls for fiscal prudence.
There are also flashing warning signs about the state aid implications of Germany’s energy splash. The European Commission has stressed that it is up to each Member State imposing the measure to determine whether the expenditure constitutes state aid and to notify the Commission. However, a Commission official also stressed the importance of a level playing field and “horizontal rules that apply to all”. A temporary crisis framework is in place to allow flexibility under state aid rules to allow countries to shoulder the economic burden caused by the war in Ukraine.
Margrethe Vestager, the commissioner in charge of competition policy, promised to review the state aid framework this month to help countries tackle the energy price crisis. It is still unclear whether the Berlin package would be assessed under the new framework currently being discussed between Brussels and EU countries, or under 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 develop an EU-wide response to the energy crisis and deal with the economic fallout from the Ukraine war.
As Europe’s largest economy, it’s what happens in Germany that counts. But Berlin may find it has limited sympathy from other EU countries at a time when many believe a united response is the only way to tackle the huge economic challenges expected this winter.
Andrea Ferrazzi, Senator of the Democratic Party of Italy, was categorical about the operations.
He stated on Facebook: “If things continue like this, we will no longer have a united Europe, but a hegemony of the strongest countries, with Germany in first place, which would not only weaken the EU but all others.”
Barbara Moens contributed to the reporting
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