EU debates new pandemic-style loans to tackle crisis

Germany’s €200 billion plan to protect households and businesses from high energy prices was one of the main issues discussed at finance ministers’ meetings on Monday and Tuesday.

French, Italian and Hungarian politicians all criticized the solitary effort as lacking solidarity, and Hungarian Prime Minister Viktor Orbán described it as “cannibalism” that will “break European unity”.

After Monday’s debates, a column written by Paolo Gentiloni and Thierry Breton, EU commissioners for the economy and internal markets respectively, was published in the German newspaper Frankfurter Allgemeine.

They called for more solidarity and, in particular: a new pandemic-type loan instrument to help the less wealthy countries cope with energy-driven inflation.

Crisis loans

“We don’t blame member states for supporting their economy,” Gentiloni said when asked about the plan at Tuesday’s meeting of finance ministers 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 Mitigation (SURE) Support Facility was established in 2020 in response to the COVID-19 pandemic in the form of temporary loan assistance of €100 billion to help countries pay for job support programs or loan support.

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

Funding terms typically reserved for wealthier EU members can then be passed on to all EU countries, with Spain and Italy the main beneficiaries, with €21.3m and €27m respectively. In 2022, a total of EUR 91.8 billion in low-interest loans was disbursed in 19 Member States.

Gentiloni and Breton are now proposing to “take inspiration from the Sûr programme” and create a similar system for defense and energy spending, which they describe as projects of “common European interest”.

This would enable countries with less “fiscal space” to protect businesses and households from high energy prices – a burden that some commentators pointed out, 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 was partly made up of grants backed by common EU debt, Sure consists only of loans.

This could make a similar mechanism more palatable to frugal governments such as the Netherlands, Sweden and Germany, which oppose new joint EU debt combined with subsidies.

In an interview after Tuesday’s debate, French Finance Minister Bruno Le Maire describe a similar loan-based system.

“We are not talking about common debt because we know that would cause problems for some member states,” he said. “But we have to decide [on a plan] now. Not in the coming weeks, but in the coming days. »

But it is not yet certain that a loan-based plan will be supported by a majority of countries.

“Opinions still differ”

“I can confirm that views on other EU-wide funding mechanisms still vary,” Executive Vice President Valdis Dombrovikis said on Tuesday.

Wealthy EU members, including Sweden and the Netherlands, prefer to first use the 225 billion euros in existing pandemic loans that have not yet been claimed.

But the finance ministers could not agree on Tuesday how these funds should be distributed. Other EU reserves (RepowerEU), which countries can use to replace Russian gas imports, may not be used for household and business income support.

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

European leaders meet again on Friday in Prague to further discuss the war in Ukraine, energy prices and the economic situation.

Not all news on the site expresses the views of the site, but we transmit that news automatically and translate it through programmatic technology on the site and not from a human editor.

Leave a Comment