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 policymakers all criticized the solitary effort as lacking solidarity, with Hungarian Prime Minister Viktor Orbán describing it as “cannibalism” that will “break European unity”.

Following Monday’s debates, a column written by Paolo Gentiloni and Thierry Breton, European Commissioners for the Economy and Internal Markets respectively, was published in the German newspaper Frankfurter Allgemeine.

They called for more solidarity and, in particular: for 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 put in place a ‘SURE’ mechanism.”

The Emergency Unemployment Risk Mitigation (SURE) Support Facility was set up in 2020 in response to the COVID-19 pandemic in the form of temporary loan assistance of 100 billion euros to help countries pay for job support programs or loan aid.

Sure was funded by social bonds issued by the commission backed by all member states, leading capital markets to charge near-zero interest rates on 10- and 20-year bonds.

Funding terms typically reserved for wealthier EU members could then be passed on to all EU countries, with Spain and Italy being the main recipients with €21.3 million and €27 million respectively. .4 million euros. In 2022, a total of €91.8 billion in low-interest loans were disbursed in 19 Member States.

Gentiloni and Breton now propose to “take inspiration from the Sûr program” and set up a similar system for defense and energy spending, which they describe as projects of “common European interest”.

This would allow countries with less “fiscal space” to protect businesses and households from high energy prices – a burden which, as some commentators pointed out, is intensified by Germany’s decade-long policy of increasing dependence on Russian gas.

Loans, not grants

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

This could make a similar mechanism more palatable to frugal governments like the Netherlands, Sweden and Germany, which oppose new shared EU debt coupled with subsidies.

In an interview following 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 weeks to come, but in the days to come.”

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.

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

But the finance ministers could not agree on Tuesday on how to distribute these funds. Other EU reserves (RepowerEU) that countries can use to replace Russian gas imports are not allowed to be used for household and business income support.

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

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