Europe is again discussing new joint EU debt. The trigger this time is a speech by EU Commission President Ursula von der Leyen, which she gave to the graduates of the College of Europe on Sunday. The college is usually attended by young people who, after their studies, want to work for the European Commission or – less happily – for one of the other EU institutions.
She explained to them how she imagines the EU's response to US President Joe Biden's "Inflation Reduction Act". She wants to solve the package of subsidies and protectionist measures not only with further subsidies, simpler state aid rules at EU level and negotiations with the USA, but also with a new pot of money at EU level: a European sovereignty fund.
The pot, which she announced in September in her annual State of the EU address, bears an idea in the name of French President Emmanuel Macron. Shortly after the start of his first term in office, he also outlined his vision of the so-called "strategic sovereignty" of Europe in a speech to students - an EU that is militarily, economically and technologically largely autonomous from China and the USA.
Macron has been persistently promoting this vision at EU level for years and has already won many allies for it in Brussels. And not just in politics. Many managers of large European companies like the idea of a more closed EU market pumped up with state aid.
So far, von der Leyen has only been vague about the financing of the pot. Industry and Internal Market Commissioner Thierry Breton, who was sent to Brussels by Macron, took over. As early as September he explained how he envisaged the financing of the sovereignty fund: with new common debts for the EU states.
"I think we should consider the possibility of financing the fund through joint debt, as we successfully did with NextGeneration EU," Breton wrote on his blog at the time. NextGeneration EU (NGEU) is the official name of the EU reconstruction program after the Corona crisis, which is now worth around 807 billion euros, the core of which is the Corona reconstruction fund financed with shared debt.
Breton's blog entry from September is almost symptomatic of the fact that politicians in particular from fiscally strapped EU countries are regularly calling for new joint EU debt. Less than a year after Merkel, Macron and the other 25 EU heads of state and government agreed on the reconstruction fund at a mammoth summit lasting several days in July 2020, things got under way. In May 2021, for example, Europe's Greens called for new joint debt to finance the – no doubt – huge investments that will be needed for the energy and climate transition.
They also support the idea of an industry fund. "We must not leave our industry alone with future tasks," says Rasmus Andresen, spokesman for the German Greens in the EU Parliament. "This also includes a green industry fund that supports our companies in converting to a climate-neutral economy, promotes innovation and creates future jobs."
Since then, calls for new common EU debt have come in quick succession. Only the reasons have changed: in the early autumn of last year, it was the gas and electricity costs, which were already high at the time. After the invasion of Russia in Ukraine then the new defense tasks. And until a few weeks ago, the then Italian Prime Minister Draghi and other heads of government were demanding a new debt-financed EU pot to finance national energy aid.
Most recently, Breton and EU Economic Commissioner Paolo Gentiloni called for new joint debts in order to grant aid loans to EU states that are overwhelmed with energy aid - knowing full well that the stronger countries would not agree to a fund that simply distributes money anyway.
"The now inflationary demands for new EU debt for almost any purpose show that the proponents have always been concerned with more: general EU debt competence," says Friedrich Heinemann, head of public finance at the Center for European Economic Research Mannheim (ZEW). "Ultimately, the EU debt for Corona was just a test balloon for comprehensive European credit financing."
Germany, the Netherlands and other member states are fighting against such new debts. The defense strategy of Chancellor Olaf Scholz and fiscally conservative politicians: Instead of new EU debt, money from the existing Corona reconstruction program NextGenerationEU could be used. To date, only around a fifth of the funds have been paid out from the fund. And anyway, once the last money from the reconstruction fund has been spent, it would first have to be examined whether the billion-dollar pot actually worked as it should.
Criticism also comes from the European Parliament. "The Sovereignty Fund is an idea from the Elysée Palace, with which part of French government spending is to be outsourced to the EU level," says Markus Ferber, the economic policy spokesman for the Christian Democratic EPP Group. “The President of the Commission should not adopt this idea. It cannot be that the European Commission's answer to every problem is to come up with a new debt-financed fund.”
There is also little understanding for the initiative in the FDP parliamentary group in the EU Parliament. "Von der Leyen's imagination knows no bounds when it comes to debt," says budget politician Moritz Körner. “Sovereignty in strategically essential sectors makes sense, but does not have to be financed by new debt. Instead of bans, subsidies and debt, Europe should once again make innovation, free trade and competitiveness the core of economic policy.”
Olaf Scholz, himself one of the founding fathers of the reconstruction fund, regularly points out that the fund was initially intended as a one-off aid measure in the corona pandemic, but by no means as a permanent institution. There are also skeptical voices about von der Leyen's project from his party.
"I wonder where we're supposed to get the money for it. With all the funds that are supposed to be invested at EU level in recent times, it is now a bit difficult to keep track of things,” says Bernd Lange, Chairman of the Trade Committee in the EU Parliament. "We also have to be careful that we don't implement a subsidy policy based on the watering can principle."
When Scholz takes a position on the subject, he also has a date in mind: Tuesday, December 6, 2022. Then, at the request of several plaintiffs, the Federal Constitutional Court will decide on the legality of the Corona reconstruction fund. The verdict of the top German judges will be decisive for how the debate on common EU debts continues.
Observers believe it is possible, for example, that the judges will declare one-off debt in an extreme emergency such as the corona pandemic to be permissible, but generally rule out permanent joint debt at EU level. That would put a considerable damper on the further discussion or even end it.
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