First crown, now energy crisis: the inflationary turbo from Brussels looms

In the debate on new joint debts at EU level, the pressure on Germany is increasing. The EU must show the same “unity and solidarity” in the energy crisis as in the crisis of the Crown, explained the Spanish Minister of Economy, Nadia Calvino. The new joint debts of the EU are still a problem.

Calvino has prominent comrades in arms. Outgoing Prime Minister Mario Draghi and other Italian and French politicians are calling for a new EU debt in the energy crisis. His suggestion: a relaunch of the Corona SURE working time reduction allowance. For this the EU Commission had taken out loans, which were mainly guaranteed by countries with a good credit rating, and had transferred the money to countries with lower ratings, such as Italy or Portugal.

Germany, the Netherlands and other Member States are fighting against these new debts. Media that Chancellor Olaf Scholz could accept new joint debts were immediately denied and ridiculed by government circles.

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Solidarity in the energy crisis

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The defense strategy of Chancellor Olaf Scholz and fiscally conservative politicians: instead of the new EU debt, money from the existing Crown reconstruction program NextGenerationEU could be used: about one fifth of the funds paid. So there are still € 600 billion available for crisis management, “Scholz said after the informal EU summit in Prague.

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Sigrid Kaag, the Dutch finance minister, also referred to the unused funds of the Corona fund: “It is not necessary for us to develop a new tool for every situation,” he said.

In fact, there is still a lot of money left in the recovery fund. On the one hand, there are loans and transfers that Member States have requested but have not yet paid. In addition, there are also 225 billion euros of loans in the fund, which no country wants to have so far.

Reallocate unsolicited credit

“At the moment there are still around 225 billion euros in reconstruction loans available,” said Valdis Dombrovskis, Commission Vice-President responsible for economic affairs, last week.

These are loans which, according to the distribution key, are intended for countries with good credit ratings such as Germany or the Netherlands, but which are not needed there because these same countries can borrow money at low interest rates on the financial markets. .

The open question is whether these 225 billion euros, which the financially stronger countries do not want anyway, can be distributed to countries with weaker credit ratings. In the discussion it is evident that credits that have not been requested should be relabelled. “There are considerations for putting the money into a new fund and distributing it,” says a government representative of one of the member countries.

However, this is not trivial. The Crown’s reconstruction program, which in the meantime has gone from 750 billion to around 807 billion euros due to inflation, had to be approved individually by the parliaments of the member states due to the shared debt. It is unclear whether a new distribution key will be covered by these votes and how easy it would be to get it approved.

The dispute is now entering the decisive round. From 20 October the heads of state and government will meet in Brussels. The issue of debt will also be discussed. Already on October 17, Commission President Ursula von der Leyen and Energy Commissioner Kadri Simson not only want to present proposals on how EU states can reduce high energy costs, but also on how measures could be financed. .

Runaway inflation in the EU

Meanwhile, experts warn that both new EU debts, such as those requested by Italy and France, and the reallocation of unsolicited reconstruction loans could further push runaway inflation in the EU.

“It depends on how the money is spent,” says Friedrich Heinemann, head of the public finance research department at the Center for European Economic Research (ZEW). “If the EU gets into debt to increase private demand in member states, it will certainly increase inflation.”

This is especially true if the money is used to finance price caps for gas or electricity. “Price brakes or state-funded price caps ensure that private households have greater purchasing power and this also raises inflation,” warns the economist.

“If the money is distributed through the watering can, as in Germany, it feeds inflation. If gas and electricity prices are subsidized, people still have enough money to go to restaurants and pay the high prices there. Limited aid for the needy is better. “

Resistance to the new EU debt

There is also resistance in politics: “Clame the EU countries are putting Germany under moral pressure to incur new joint debts. But that would further fuel inflation. In this situation, the federal government must not give in, “says Moritz Körner, MEP for the FDP in the European Parliament.

“If at all, the loans that have already been approved by the reconstruction program should be used. But even these run the risk of raising inflation ». This is also the topic of the International Monetary Fund (IMF) in its most recent economic forecast.

In mid-August, Economy Commissioner Paolo Gentiloni, in response to a request from Körner, said that despite high inflation, his authority would continue to take out loans to finance the crown’s NextGenerationEU reconstruction program.

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“Regarding the issuance of debt instruments, the Commission will continue its corresponding activity, because it has the legal mandate to mobilize funds for the implementation of various Union programs”, wrote Gentiloni in the reply, which is available by WELT. “This order does not depend on the outlook for inflation.”

Finnish Finance Minister Annika Saarikko also said her government is against the EU’s new joint debt because it would increase inflation. “There is no point in putting extra money on the table while we have such high inflation.”

British Prime Minister Liz Truss has had to painfully learn what can happen if the state takes on new debt to boost private consumption: her debt-financed tax cut program has triggered a currency crisis within hours and is likely to cost her. office to the conservative politician.

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