Just as coronavirus emergency measures are winding down, some countries are pushing for another financial safety net.
Just as the EU is unwinding its rescue package to counteract the economic fallout from the coronavirus pandemic, Russian President Vladimir Putin’s invasion of Ukraine means that Brussels is having to weigh up another raft of financial support measures.
The European Commission is exploring options to shelter its economy from the blowback of Western sanctions on Russia, including surging energy prices and potential retaliatory countermeasures from the Kremlin, five EU officials and diplomats.
The package, which could be adopted as early as next week ahead of an EU leaders’ summit in Paris next Thursday and Friday, is still under discussion. Early talks, however, suggest that its elements could include repurposing of existingloans, fresh debt to raise money for loans in case of energy price spikes, and newguidance on fast-track approval of state subsidies.
“In the short term, there is a set of measures on which we have worked with the European Commission, in particular with [European Commission Executive Vice President] Margrethe Vestager, which can relate either to state aid or to special loans for companies … They must target in priority the most fragile companies, the companies that are gas-intensive and the companies that are exposed to international competition. This is the framework that we are defining and that has to be validated,” France’s Finance Minister Bruno Le Maire told reporters at a press conference on Wednesday, after an online meeting of EU finance ministers.
EU countries have not yet been formally consulted, but initial reactions from some diplomats were cool, with one describing it as the Commission “getting ahead of itself.”
In recent days, EU leaders have been calling on Brussels to make these kinds of proposals: “If you have a situation of sanctions and countersanctions, that will have an impact,” Belgian Prime Minister Alexander De Croo told reporters on Tuesday. “Hence, at the European level, we strongly urge the European Commission to develop a package of measures to limit the economic impact.”
Prime Minister Mario Draghi of Italy, one of the countries that would be severely impacted if Putin turns off the gas taps, told senators on Tuesday that “the war will have consequences on the price of energy, which we will have to face with new measures to support companies and families. It is appropriate that the European Union facilitates them, to avoid excessive repercussions on the recovery.”
One element the Commission is working on and which seems to have the informal support of capitals is a new ad hoc temporary framework for state aid, much like the one adopted at the onset of the COVID-19 pandemic. This would detail the conditions under which capitals would be allowed to shore up their companies affected by the Ukraine crisis, and ensure a fast-track approval from Brussels. Ongoing discussions focus on what would be the scope, the duration and the triggering event for such a new framework.
Brussels could also invite EU countries that haven’t used up their entitlement of loans under the bloc’s Recovery and Resilience Facility, the €723.8 billion joint-debt coronavirus recovery package, to ask for more financing. No country except Italy has requested the full amount of loans. Any new financing request under the facility would need to come with a spending plan subject to the Commission and Council’s approval.
A third option would be for the EU to issue fresh debt to raise money that it would then lend to capitals at attractive rates, that could be used to counter a further spike in energy prices. The EU treaties allow for the bloc to provide financial assistance to its members under “exceptional circumstances beyond its control,” and “in particular if severe difficulties arise in the supply of certain products, notably in the area of energy.”
Officials stressed this would require a signoff from EU capitals and some diplomats noted that raising new debt isn’t their preferred option. “Better look into existing instruments than start fights about new money,” said one EU diplomat.
Another EU diplomat was even more scathing: “The Commission is once more getting ahead of itself. Of course, we all need to look carefully at the economic and financial consequences of the current situation. But for some time to come, EU member states will still benefit largely from the recovery fund. Those extra billions should help them weather the current situation. In any case, the debate is taking a wrong turn: Our priority must be to urgently chip in to help Ukraine defend its statehood and preserve its economic basis — and not to look for some extra bucks from the EU.”