By Ambra Visentin

The day before the meeting of the EU energy ministers in charge of agreeing on European emergency interventions in the energy markets, Germany announced the introduction of its new ‘economic defence shield’ measure by the end of October. Germany’s 200 billion package of measures against rising gas prices thus sends the wrong signal to Europe by giving the impression of an approach to the problem that does not take into account the need for coordination between states. “Germany is using its economic power in this war. Yet the member states of the European Union (EU) are fighting the energy war together,’ said German Finance Minister Christian Lindner, considering it essential to maintain unity to defeat Putin’s energy blackmail. Subsidies for German domestic gas consumption tend to drive up prices and harm other countries.

Simone Tagliapietra, Georg Zachmann and Jeromin Zettelmeyer, researchers at the Bruegel Institute in Brussels, discussed the significance and impact of this. According to the scholars, Germany is applying ‘creative accounting’ because the package circumvents German fiscal rules. The German ‘debt brake’ is currently suspended, but the government has pledged to apply it in 2023. Since it will be impossible to finance the new support plan while complying with the federal deficit limit of 0.35 per cent of GDP set by the ‘debt brake’ rule, next year’s deficit will actually have to be financed by large-scale borrowing (which the German constitution allows for in an emergency).

The main risk is that the package disrupts the level playing field between EU economies. In the absence of a common fiscal response, governments with more fiscal space are inevitably more successful in crisis management. If the brake on German gas prices gives German companies a better chance of surviving the crisis than Italian companies, for example, economic divergences within the EU could widen and European unity in the face of Russia could be undermined.

In the meantime, the European Commission discussed the next ‘energy subsidy’ measures, which will not enter into force until 2023, with the exception of a one-off payment in December. According to the proposal, private consumers and small and medium-sized enterprises will be relieved in a two-stage model with a total volume of €66 billion. €5 billion will be paid in a first stage this year in December, with gas suppliers waiving the advance actually due, but continuing to supply gas to customers. The state will transfer the money to the suppliers, the deadline is 1 December. However, this model is already being criticised by some economists on the grounds that customers with low gas tariffs would not benefit from the higher rebates. “A one-off payment would be better than the discount now provided for all gas customers, because the former would be more targeted at poorer households,” said the president of the Ifo Economic Research Institute in Munich.


Photo: Norbert Wegner on Flickr, Federal Chancellery in Berlin