The rain of millions from Germany to its industry sows discord in the EU

The announcement by the German Government that it will mobilize 200,000 million euros in public aid to help companies and households in its country to weather the consequences of the energy crisis was received with a barrage of criticism yesterday in the Eurogroup, surprised by the magnitude of the German state support and the lack of coordination with Brussels and the rest of the member states.

Thomas Osborne
Thomas Osborne
03 October 2022 Monday 21:41
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The rain of millions from Germany to its industry sows discord in the EU

The announcement by the German Government that it will mobilize 200,000 million euros in public aid to help companies and households in its country to weather the consequences of the energy crisis was received with a barrage of criticism yesterday in the Eurogroup, surprised by the magnitude of the German state support and the lack of coordination with Brussels and the rest of the member states.

"If there are no consultations, if there is no solidarity, if there is no well-calibrated support and if the conditions of free competition are not respected, we risk a fragmentation of the euro zone," warned French Finance Minister Bruno Le Maire. “What we need is to define together a global economic strategy” that even includes the issuance of Eurobonds, he added upon his arrival at the meeting of Eurozone Economy Ministers held yesterday in Luxembourg while in Budapest the Hungarian Prime Minister, Viktor Orbán, spoke of "cannibalism" between countries and was -for once- worried about the lack of European unity in the face of the energy crisis.

Where Berlin speaks of a "great protective umbrella", the rest of the countries see a rain of millions that, in addition to distorting competition between member states, can make the task of the European Central Bank difficult and fuel inflationary tensions in the euro zone. “Fiscal policy must complement, not complicate, monetary policy,” declared the European Commissioner for the Economy, Paolo Gentiloni, in Luxembourg, who evoked the “good example” that the European Union set in the pandemic and advocated giving a “common response” to the current crisis in line with his "mantra" that they be "specific and time-limited" measures.

The German finance minister, the liberal Christian Lindner, tried to reassure his European colleagues about the nature of public aid. “Germany is not proposing an economic program or stimulating demand or giving economic aid. What we are doing is absorbing ruinous energy price hikes, showing [Vladimir] Putin that we are using our economic power to protect ourselves.” The aid program, which he defines as "proportionate" to the size of the German economy, will be executed in two years, not only in 2023, he clarified given the magnitude of the announced figure, the equivalent of 5% of its GDP.

The alarm at the German announcement led the Eurogroup to issue its second recommendation in a few months on fiscal policy for the 2023 budgets. "We emphasize the importance of close coordination and common solutions at European level where necessary" as well as of "Avoid policies that add inflationary pressures," says the statement, which reminds governments that "they cannot protect the entire economy" from the impact of the energy crisis.

The Recovery Fund approved by the EU to deal with the pandemic and the aid plan for the energy transition "can provide important support" to finance temporary policies "that do not distort" the single market, the Eurogroup points out a few days after that the president of the European Commission, Ursula von der Leyen, warned that "without a European solution" the Union will not come out of this crisis. Far from thinking about a new issue of Eurobonds as Paris demands, in Brussels the SURE program is used as an example of a “European budgetary response”, which served to finance measures such as ERTEs during the covid. "This is not the time to blame the efforts of this or that Member State, it is the time to try to raise the level of common solidarity," Gentiloni summed up.