EU considers Covid-style joint debt to cushion energy crisis impact

EU considers Covid-style joint debt to cushion energy crisis impact

EU officials say "astronomical gas and electricity prices" may require a joint-debt agreement to help fiscally weak members. Picture: Yui Mok/PA

The EU is considering issuing a Covid-style common debt, to share costs of energy subsidies across fiscally weaker members.

Two top EU officials called for the use of common spending to tackle the energy crisis, as member states ratcheted up criticism of German plans for a giant borrowing programme to cap power prices.

“The energy crisis and rising social anger in a context of record inflation and astronomical gas and electricity prices has brought us to another crossroads,” the two officials said in op-eds published in European newspapers.

EU internal market chief Thierry Breton, and the bloc’s economy czar Paolo Gentiloni, said the current situation requires solidarity among member states, including the issuance of joint-guaranteed debt similar to what was done during the pandemic.

“We must think about mutualised tools at the European level,” they said.

 "Only a European budgetary response will allow us, by supporting the action of the ECB, to respond effectively to this crisis and to calm volatile financial markets.

Opposing ideas

The push for joint debt issuance faces strong opposition from more hawkish EU members, including Germany.

While the bloc launched a €1.8 trillion emergency package backed by joint debt to finance member states’ efforts to deal with the pandemic, such a move was unprecedented.

“We are open to discussing other instruments, but this crisis is very different from the corona pandemic,” German finance minister Christian Lindner told reporters.

"We aren’t dealing with a demand shock where public funds have to be used to stabilise demand or stimulate the economy, we are dealing with a supply-side shock, and we have to react to it by expanding the supply and by showing a joint front on the international markets.

However, the majority of funds made available as part of the EUs pandemic recovery fund have not yet been disbursed, Chancellor Olaf Scholz said when asked about the possibility of further joint debt to address the energy crisis.

"These funds have overwhelmingly not been spent yet," Scholz said after a meeting with the Dutch prime minister in Berlin, adding that this support could be "particularly effective" now that a second crisis has followed the pandemic.

In 2020, the 27 EU nations made an unprecedented agreement to jointly borrow €750bn for a fund to help fight the economic slump caused by Covid-19, and address the challenges of climate change.

  • Reporting by Bloomberg and Reuters

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