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Analysis | A giant leap for Germany in aid-sharing, a small step for the EU

The mounting tsunami of rising energy costs eventually forced Germany into action to silence the grunts of the rest of the European Union.

Chancellor Olaf Scholz is ready to drop his opposition to EU-level joint lending to cushion the blow of the crisis, Bloomberg News reports. While this doesn’t look like a “Hamiltonian leap” toward federalized debt some enthusiasts hoped for during the Covid-19 crisis – when a reluctant Berlin nods to an unprecedented €724 billion ($702.5 billion) recovery fund ) that offered grants – it’s a positive step. Italian debt recovered on the news, while the euro made up for losses.

The reported structure is more like the so-called SURE program, which offered loans rather than grants of up to €100 billion to support workers during the pandemic, rather than the taboo-breaking recovery money that continues to be disbursed to companies as Italy reforms and investment pledges are made. fulfilled. In August, Scholz openly praised SURE as a “pragmatic” solution that had helped more than 30 million Europeans.

What makes this such a big turnaround is that Germany has resisted the idea for months, implying that it was unjustified – not even in light of outrage from the rest of the EU over its own domestic energy aid plan of up to €200. billion. The sheer scale of the plan, coupled with Berlin’s year-round ‘nein’ for more ambitious burden-sharing, prompted European Commissioners Thierry Breton and Paolo Gentiloni to warn that such beggar movements could undermine the solidarity and unity of the EU. undermine. Hungarian Prime Minister Viktor Orban called it, somewhat less tastefully, ‘cannibalism’.

It also reflects the need to find urgent solutions in the face of Vladimir Putin’s escalating war and natural gas shutdown as a painful recession looms. Seven months after Russia’s invasion of Ukraine, and despite surprising unanimity on sanctions, EU leaders have exceptionally managed to cover themselves in glory by unlocking financial support to cushion the fallout at home. Leaders’ summits have come and gone with plenty of ideas – such as limiting the price of gas – but with few details. With citizens increasingly expected to do their part to turn down the thermostat and reduce energy demand, and with the increasing number of business failures, the cost of inaction is too high.

“If ever there was a moment for ‘more Europe’, this is it,” European Parliament President Roberta Metsola said last month.

So if more money is on the way, what can it be spent on? A new SURE-like initiative is unlikely to serve as a simple worker support tool, as labor markets remain open to businesses. Nils Redeker, deputy director of the Jacques Delors Center at the Hertie School, believes that the aim should be to protect the EU’s internal market and support huge investment needs, such as energy infrastructure, which are vital this year become. Underinvestment in supply chains during the pandemic has exacerbated current inflationary pressures.

A more focused guide to how money can help could even be found in the EU’s “Fit for 55” plan, which sets out ambitious climate targets. While this decades-long energy transition plan was unveiled more than a year ago and seems quite anachronistic in a world where more coal is being burned to replace Russian gas, it contains specific tools to help protect consumers from higher energy prices. Initially designed as a €72 billion buffer for vulnerable households and to finance more energy-efficient buildings, this so-called ‘social climate fund’ could be adapted and launched earlier to meet the current crisis, suggests the Center’s Elisabetta Cornago European reform.

This would fit in with the International Monetary Fund’s advocacy for countries to remain “laser-focused” in providing financial assistance to those who need it most. After the fiscal realities in the current crisis hit the UK, fiscal solidarity now seems to hit Germany. It’s not a Hamiltonian jump, but it’s enough.

More from Bloomberg Opinion:

• There will be a European crisis. What kind will it be?: Tyler Cowen

• 44 European leaders gather. What could go wrong?: Andreas Kluth

• Winter reality dawns on EU leaders: Lionel Laurent

This column does not necessarily reflect the views of the editors or Bloomberg LP and its owners.

Lionel Laurent is a Bloomberg Opinion columnist on digital currencies, the European Union and France. Previously, he was a reporter for Reuters and Forbes.

More stories like this are available at bloomberg.com/opinion

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