The EU is debating new pandemic-style loans to deal with the crisis

Germany’s 200 billion euro plan to protect households and companies from high energy prices was one of the top topics at the finance ministers’ meeting on Monday and Tuesday.

French, Italian and Hungarian decision-makers criticized going it alone as showing little solidarity, while Hungary’s Prime Minister Viktor Orbán described it as “cannibalism” that would “break European unity”.

Following Monday’s debates, Paolo Gentiloni and Thierry Breton, European Commissioners for the Economy and the Internal Market, commented released in the German newspaper Frankfurter Allgemeine.

In it, they called for more solidarity and in particular: a new pandemic-style lending instrument to help less affluent countries weather energy-related inflation.

crisis loans

“We do not accuse member states of supporting their economies,” Gentiloni said when asked about the plan at Tuesday’s finance ministers’ meeting in Luxembourg. “But if we want to avoid fragmentation, I think we need a higher level of solidarity. We need to introduce a ‘SURE’ mechanism.”

The Emergency Unemployment Risk Reduction Assistance (SURE) mechanism was launched in 2020 as a $100 billion temporary loan assistance in response to the COVID-19 pandemic.

Sure was financed with social bonds issued by the Commission, which was backed by all member states, which led to the capital markets demanding near-zero interest rates on 10- and 20-year bonds.

Financing terms normally only available to the wealthiest EU members could then be passed on to all EU countries – with Spain and Italy being the biggest beneficiaries at €21.3 million and €27.4 million respectively. By 2022, a total of €91.8 billion in low-interest loans had been disbursed to 19 member states.

Gentiloni and Breton now propose “taking inspiration from the Sure programme” and setting up a similar scheme for defense and energy spending, which they described as projects of “common European interest”.

This would allow countries with less “fiscal space” to insulate businesses and households from high energy prices – a burden e.g some commenters is reinforced by Germany’s decades-long policy of increasing dependence on Russian gas.

Loans, not grants

Unlike Europe’s €800 billion pandemic fund, which consisted partly of grants guaranteed by shared EU debt, Sure consists of loans only.

This could make a similar mechanism more acceptable to frugal governments like the Netherlands, Sweden and Germany, which oppose new joint EU grant-related debt.

In an interview after the debate on Tuesday, French Finance Minister Bruno Le Maire sketched a similar system based on loans.

“We are not talking about joint debt as we know that would raise problems with some member states,” he said. “But it has to be decided [on a plan] now. Not in the coming weeks, but in the coming days.”

However, it is not yet certain that a credit-based plan will be supported by a majority of countries.

“Opinions still differ”

“I can confirm that opinions are still divided on further EU-wide financing mechanisms,” said Executive Vice-President Valdis Dombrovikis on Tuesday.

Wealthier EU members, including Sweden and the Netherlands, prefer to first use the existing €225 billion pandemic loans that have not yet been drawn.

But finance ministers couldn’t agree on Tuesday on how to split those funds. Other EU reserve (RepowerEU) countries that can replace Russian gas imports may not be used for income support for households and businesses.

This leaves a financing gap between wealthy and less wealthy countries.

European leaders will meet again in Prague on Friday to further discuss the war in Ukraine, energy prices and the state of the economy.

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