Brussels The federal government has already decided on three relief packages because of the high energy prices, and it will probably not stop there. Most other European governments are also trying to avert the impending recession with ever new subsidies.
The recent spending of billions fuels concerns about a new debt crisis. The reserves could soon be exhausted, especially in the heavily indebted countries of Southern Europe – especially since the financing costs between North and South are again widely divergent.
"Rising interest rates harbor the danger of driving Europe apart," he warns SPD- MEP Joachim Schuster. "If countries like Italy have to pay significantly higher interest rates for years, that's not only a problem for Italy, but also for the euro zone."
At the meeting of the 27 EU finance ministers in Prague on Friday, the precarious economic situation is at the top of the agenda. The meeting is overshadowed by the special meeting of energy ministers on the same day. At least the householders have to provide the money for the national relief packages. According to Brussels, the cost of the new aid is already one percent of EU economic output.
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"A strong political wind is blowing" for more subsidies, says an EU official. The state cannot permanently compensate for the high energy prices. The balance of supply and demand must be restored through diversification of energy sources. That is also crucial so that the debts of the euro countries do not get out of hand.
Economists: "Recession is inevitable"
Economists' forecasts are getting bleaker by the day. "The recession is inevitable," said Jens Eisenschmidt, chief European economist at the US investment bank MorganStanleythis week at the annual meeting of the Bruegel Institute of Economics in Brussels.
The Kiel Institute for the World Economy (IfW) forecast on Thursday that the German economy will shrink by 1.4 percent in the coming year. At the same time, inflation is expected to rise to 8.7 percent. The economist Beatrice Weder di Mauro warns: “Everyone is talking about the perfect storm. But he can become even more perfect.”
Everyone is talking about the perfect storm. But he can become even more perfect. Economist Beatrice Weder di Mauro
Therefore, the pressure on the EU finance ministers to intervene in fiscal policy is growing. The International Monetary Fund (IMF) demands a permanent EU investment fundto ensure the macroeconomic stability of the euro zone. "Several unprecedented shocks on top of already high levels of debt" called for a determined response, the Washington-based financial institution writes in a recent analysis.
The euro countries would have to quickly agree on a new set of rules for government spending, which should also include raising joint debt. "The reform of the fiscal rules cannot wait," he warns IMF. New debt crises would endanger the continued existence of “the EU itself”. What is needed is a "borrowing capacity" combined with an "income stream" that will enable the EU to service the common debt.
The IMF cites the Corona reconstruction fund Next Generation EU as a model. This will pump more than 700 billion euros into the European economy by 2026 and made a significant contribution to growth this year.
Large structural differences between countries
Also the SPDParliamentarian Schuster calls for these EU funds to be consolidated beyond 2026. The Union needs "clear steps towards a common fiscal policy," he says. "We should set up a permanent EU investment fund to at least partially compensate for the different economic power of the EU countries."
Economist Gregory Claeys from the Bruegel Economic Institute says that each country can currently make the necessary investments on its own. But in the long run, a common EU investment fund could be useful because there are major structural differences between countries, which could widen in the current crisis. "In the long term, a fund could help to balance the imbalances in the euro zone." It could also finance major cross-border projects for which national governments lack the incentive.
The problem: A number of governments are ruling out further joint borrowing. "I'm concerned about the economic resilience of some EU countries," Dutch Finance Minister Sigrid Kaag said this week. But that doesn't mean that you need a new financing instrument. “Our stance remains reserved. We are not convinced.”
Federal Finance Minister Christian Lindner (FDP) also remains firm. He rules out a new EU debt fund because he doesn't want a "transfer union". He also rejects the exception rule for green investments in the Stability Pact demanded by the Greens. Germany has not had good experiences with golden rules for investments, he told Politico. Politicians are very good at declaring all possible consumption expenditures as investments. Debt growth must be limited.