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Germany pushes back on joint-debt plan as EU’s energy fight deepens

LUXEMBOURG — Germany on Tuesday poured cold water on a proposal by France and Italy’s European commissioners to issue new EU-denominated debt to tackle the economic fallout from the energy crisis.

Berlin is in the eye of a growing political storm after it unilaterally announced a cash injection of up to €200 billion into its own economy to help cushion the blow of soaring energy prices on consumers and industry. France and Italy have warned that such a massive intervention could create an unfair imbalance in Europe’s single market, with German companies gaining a state-funded advantage over EU rivals.

In response, the French and Italian commissioners in Brussels, Thierry Breton and Paolo Gentiloni, have made a call for greater European financial solidarity, involving some financial support measures jointly backed by the EU. This has, however, gained short shrift from German Finance Minister Christian Lindner and the European Union’s own hawkish economy chief, Valdis Dombrovskis.

Breton and Gentiloni made their call in an op-ed published in a series of EU newspapers on Monday night.

“Faced with the colossal challenges before us, there is only one possible response: that of a Europe of solidarity. In order to overcome the fault lines caused by the different margins of manoeuvre of national budgets, we must think about mutualised tools at the European level,” they wrote in their piece for the Irish Times, Corriere della Sera, Les Echos and FAZ.

Breton and Gentiloni aren’t just Commission heavy-hitters but echo calls from Paris and Rome for more EU debt issuance.

Gentiloni hammered home his point again on Tuesday ahead of a meeting of EU finance ministers in Luxembourg where the issue isn’t on the agenda but is likely to be discussed. “If we want to avoid fragmentation, if we want to face this crisis, I think we need a higher level of solidarity and we need to put in place some further common tools, for example what we did with this SURE mechanism during the pandemic was an interesting proposal, it is based on loans, and I think it could be realistic,” he said.

He was referring to the EU’s scheme under which the Commission borrowed on cheap terms thanks to its triple AAA rating, and lent €100 billion to EU countries to back up their short-term work support programs. This scheme was credited with keeping 31 million people in jobs and 2.5 million companies from closing in 2020, according to the Commission.

But the answer from Berlin came almost immediately: “More far-reaching proposals based on the SURE program cannot be justified at this point in time,” said Germany’s Finance Minister Lindner on entering the same meeting.

Germany’s support package of up to €200 billion by 2024 is particularly aggravating for other EU countries as Berlin is prepared to issue more debt at home but is not wiling to do the same at the EU level.

Commission Executive Vice President Dombrovskis, who tends to side with fiscally conservative countries, also played down the joint-debt idea: “This question requires further discussion as there are different views on this question around the table,” he said.

Hans von der Burchard contributed reporting.

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