German chancellor Olaf Scholz has reportedly signalled his readiness to back a fresh issue of joint EU debt to be distributed as member state loans as a financial cushion against rising energy costs.
Such a shift in policy, reportedly made on the sidelines of last week’s EU gathering in Prague, could revive long-standing German fears of the EU becoming a “debt union” with Berlin on the hook for others’ liabilities.
It will also meet staunch opposition from his junior coalition partner, the liberal Free Democratic Party. Still wincing from a regional election disaster on Sunday, FDP leader Christian Lindner, who is also federal finance minister, has promised to boost his party’s profile with a more robust defence of his party’s neo-liberal policies.
Strict opposition
Last week Mr Lindner reiterated his opposition to a new debt programme along the lines of the pandemic-era Sure programme that offered €100 billion job-support loans, issued by the EU and underwritten by member states.
That was the first time Germany dropped its strict opposition to joint debt issuance. Then chancellor Angela Merkel backed the Covid-19 pandemic plan – co-developed by Mr Scholz as finance minister – on condition it was a one-off. Mr Scholz signalled later he called it a “fundamental change”: a step forward for the EU “we won’t go back on”.
A Berlin spokesman declined to comment on a Bloomberg report that Mr Scholz has shifted his position on EU energy loans, noting that other existing emergency programmes still contained funds which could be repurposed to tackle rising energy costs.
Italian coalition
German officials are hesitant about committing until they see what kind of coalition agreement is struck by the new Italian government, led by the far-right leader Giorgia Meloni.
In addition, they are waiting for a final ruling from the constitutional court in Karlsruhe about the legality of the EU recovery fund.
In an April 2021 emergency ruling, the court allowed the fund to go ahead with German participation because the cost of participating outweighed the risk of blocking it.
Their backing was based on the understanding that it “does not appear highly likely” that participation would result in “any additional borrowing on behalf of the European Union”.
A new emergency fund, however, might change that. In its preliminary ruling, the Karlsruhe judges warned that further EU-underwritten borrowing could “violate the principle of democracy if the type and level of public spending were, to a significant extent, determined at the supranational level, depriving the Bundestag of its decision-making prerogative”.
