German borrowing lights up under EU heavyweights and fiscal hawks –

Pressure is mounting on Germany over its refusal to consider EU-level instruments on joint borrowing to tackle the ongoing inflation crisis, with Spain warning it risks jeopardizing the market unique.

Meanwhile, Germany’s move intensifies pressure on traditionally fiscally conservative governments to follow Berlin’s lead and protect their own economies.

Some of Europe’s biggest member states – Italy, France and Spain – are among those unhappy with Germany’s position on the common measures.

Although Germany has since moved on to other ideas for joint EU action, with a recent U-turn on joint gas purchases seen as an ‘olive branch’ to appease critics, Berlin is sticking with it. largely sticks to its guns by spending up to €200 billion to relieve its economy of the brunt of soaring energy prices while refusing to do the same at EU level.

While it is necessary to take into account the different “positions and difficulties” in EU countries, this cannot be done to the detriment of other members of the bloc, said Spanish Minister for Ecological Transition, Teresa Ribera, to journalists in Brussels on Wednesday 12 October.

“Germany and other member states, which were very dependent on Russian gas, need others’ understanding, but not at the cost of putting others at risk,” EURACTIV partner EFE reported, according to the report. Spanish minister.

In the meantime, EU capitals including Madrid and Paris are waiting for the EU executive to deliver its verdict on the Berlin plan.

“The role of the Commission is to ensure that there are no market distortions,” a French government source told EURACTIV.

Joint loan

The European Commission and most Member States are currently considering joint borrowing at EU level as one of the main options to deal with the crisis.

The call for joint borrowing was sparked by an op-ed by Economy and Internal Market Commissioners Paolo Gentiloni and Thierry Breton last week and has since garnered considerable support from Europe’s largest member states – France, Italy and Spain.

As a second round of the hefty €750bn Recovery Fund passed during the pandemic is currently unlikely and would take too long to pass, the joint-borrower-friendly coalition is pushing for a less controversial option.

The envisaged system would allow the European Commission to borrow money on cheap terms on the international market and transmit it on the same terms to Member States whose credibility is less than that of the institution.

The new instrument will likely be modeled on the SURE mechanism proposed as one of the first measures at EU level during the pandemic; an EU loan set up through which the Commission raised 100 billion euros in the markets. The borrowing was backed by a system of member state guarantees to help bear the fiscal burden of national authorities’ efforts to support workers and protect jobs.

In its new version, the system would ensure that EU countries with lower ratings can access cheaper loans. However, this would leave richer countries like France or Germany, which already have access to favorable financing conditions, in the cold.

While Italy, for example, currently pays 4.7% for its 10-year bonds, the European Commission only pays 3.2%.

However, among the countries that have already expressed their opposition to the new mechanism, such as the Netherlands or Finland, is also the largest economy in the bloc: Germany.

While Chancellor Olaf Scholz once hailed the EU Recovery Fund as a ‘Hamiltonian moment’ for the EU that would open the doors to a full-fledged fiscal union, the current government has taken a more hawkish stance. On the question.

Finance Minister Christian Lindner has repeatedly made it clear that joint borrowing during the COVID-19 pandemic will be a one-off thing and has dismissed calls for the new regime to be introduced, at least for now.

How frugal is frugal?

However, Berlin’s decision has led to increased pressure to do the same in traditionally “frugal” European governments, which could, in turn, soften their stance at the bloc level.

Austrian industry, for example, which accounts for around 28% of GDP and is closely linked to its neighbour, now wants a mega German-style aid package.

“Austria must follow this [German] example to ensure competitiveness”, explained Christoph Walser, President of the Tyrolean Chamber of Commerce.

At the same time, highly influential chambers of commerce in almost every state in the country have expressed concerns about Germany.

“Competitiveness vis-à-vis Germany, the most important sales market for our trade and craft businesses abroad, is at stake”, underlined Renate Scheichelbauer-Schuster, commercial manager at the chamber of commerce. Austrian.

Industry representatives say Germany’s massive €200bn package gives it the security to plan “until 2024”, which they say Austrian companies “desperately need”.

The industry has already been backed by the social-democratic opposition SPÖ, which currently leads with a five-point lead in the polls.

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