BERLIN, Feb 16 (Reuters) – Hopes for new joint European Union borrowing to support Europe’s green industry were dashed as northern EU members, led by Germany, staunchly opposed any form of new common debt.
Such a move had been backed by France and European Council President Charles Michel to help highly indebted countries raise the funds needed to transform their economies in the face of a vast subsidy program enacted by the United States.
Common borrowing was first used by the EU to help countries pay for the recovery from the coronavirus pandemic but then, as now, countries such as Denmark, Finland, the Netherlands and Germany resented having to pay for poorer southern countries they see as lacking fiscal discipline.
“I don’t see a need for new financial instruments, or, more precisely, any need for new common debt at the European level,” German Finance Minister Christian Lindner said in Helsinki on Wednesday, at a panel on the future of EU finances.
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The U.S. Inflation Reduction Act, with $369 billion of subsidies largely for manufacturers based in North America, has put the EU on the defensive. European leaders fear the local content requirements may lure companies away from Europe.
“We need better quality public sector spending instead of more quantity,” Lindner said, a reference to those proposing additional subsidies for the European green industry to level the playing field with the United States. “An excessive expansion of EU subsidies is not the right response,” he said.
Finnish Finance Minister Annika Saarikko agreed, arguing there are sufficient funds available to EU countries with the bloc’s 800-billion-euro ($855 billion) pandemic recovery fund – dubbed ‘Next Generation EU’.
“We have no need for additional EU funding,” she said in a press conference with Lindner.
On Feb. 1, the European Commission presented its plan to strengthen Europe’s position as a manufacturing hub for green products, partly in response to the U.S. subsidies, and opened the door to increased levels of state aid.
Smaller countries fear bigger countries will outspend them, with eleven members sending a letter to the Commission urging “great caution” in relaxing the bloc’s state aid rules, saying that risked damaging competition.
As some countries have bigger fiscal capacity than others, some European leaders have returned to the idea of EU joint debt to help even the balance.
The 27 nations had agreed in 2020 to jointly borrow 800 billion euros for the Next Generation EU program.
“The idea of mutualizing debt is a solution always looking for a problem,” Germany’s Lindner said.
According to the ministry, issuing debt in this context would lead to a loss of confidence in international financial markets and would counteract the European Central Bank’s monetary policy tightening, which aims to tame inflation.
He also argued that there was no fiscal need for common debt, as only a fraction of the funds made available by Next Generation EU has been used.
According to the finance minister, over 252 billion euros of Next Generation EU funds have not been committed yet.
($1 = 0.9351 euros)
Reporting by Maria Martinez and Jan Strupczewski; Editing by Toby Chopra
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