Berlin insists on its refusal of joint EU borrowing

Common European funding backed by Brussels to deal with the US’s multibillion-dollar inflation-busting law will face an uphill battle with Germany as Finance Minister Christian Lindner takes a stand against a response that would involve any form of joint borrowing at EU level.

With the US, China and other countries spending billions to boost their industries and attract investors with extensive subsidies, the EU is under increasing pressure to act.

While the European Commission envisages a common European financing system – the sovereign fund – to deal with these developments, Germany has made it clear that joint debts are not the way forward.

While German Finance Minister Christian Lindner stressed that it could be “useful” to “bundle existing instruments”, he stressed that any instrument involving joint debts would be out of the question.

“A sovereign fund should not be a new attempt at common European borrowing,” he warned ahead of a meeting of European finance ministers on Monday (December 5th). “We see no reason for additional common European debt,” Lindner added.

European Commission President Ursula von der Leyen outlined the centrality of the European sovereign fund to a common European response to the Deflation Act just the other day.

“The logic behind this is simple: a common European industrial policy requires common European funding,” she said on Sunday.

Relaxation of state aid rules

Along with the sovereign fund, which should provide the firepower to counter the US initiative, von der Leyen also called for a relaxation of EU state aid rules. This effort also received the support of the German finance minister.

“More flexibility in financial aid for subsidies is welcome, more flexibility and more speed anyway,” Lindner said.

However, easing state aid rules could be a double-edged sword. Restrictive rules ensure that no country gets an unfair economic advantage in the single market by subsidizing its industry.

An overhaul of EU rules on subsidies could therefore distort the single market, as countries with greater fiscal strength and lower debt ratios can outperform their European peers by spending more money.

For von der Leyen, the sovereign fund is one of the key instruments to prevent this distortion of the single market. While member states should have the “flexibility to invest their budget in strategic areas”, he stressed that “this approach cannot stand alone”.

To avoid favoring “states with deep pockets”, von der Leyen thus called for a “common European response”. However, with the EU budget already stretched, a European response that could match the US deflationary act would only be possible through joint borrowing or increased spending at the national level.

Limiting government spending

However, the firepower of many EU member states is also limited by EU rules on debt, limiting government spending.

While Germany has significant fiscal leeway due to its relatively low debt ratio, other countries are less fortunate, with France, Spain and Italy all having debt ratios above 110% – a far cry from the 60% outlined in the pact stability and development of the EU.

While the European Commission has presented its plans to reform debt and spending rules to allow for more flexibility, the current proposal does not go far enough for Germany to ensure fiscal prudence among member states.

“The European Commission’s ideas for the Stability and Growth Pact are not the end of the debate, but at best the beginning,” said Lindner.

One of the cornerstones of the revision of debt and spending rules is the introduction of individual plans tailored to each Member State instead of a more general set of rules that will apply to all Member States.

However, the push is strongly opposed by Germany’s finance minister, who once called himself a “friendly hawk”.

A European stability and growth policy must be based on “common rules that are identical for everyone,” Lindner stressed. “A bilateral settlement of the issues concerning the stability of our fiscal order […] it would not be a reform that would make Europe as a whole stronger and more competitive,” Lindner added.

Read the News today and get the latest news.
Follow Skai.gr on Google News and be the first to know all the news.