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30th Jan 2023

Germany braces for criticism of national €200bn energy fund

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Germany's plan to shield its economy from the effect of rising energy prices with a €200bn stimulus package was criticised by several EU leaders arriving at the European Political Community meeting in Prague on Thursday (6 October).

Those grievances are expected flare up on Friday, during the more intimate meeting of the 27 EU leaders, when German chancellor Olaf Scholz is scheduled to lay out the plan in detail.

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Some leaders voiced their concerns in Prague that the domestic proposal from the largest European economy could create disadvantages to smaller countries and damage EU unity.

"The difficulty is all of us adopting all kinds of economic packages to help our citizens. But because the German economy is so large, this assistance could be potentially a little bit distorting," Krišjānis Kariņš, Latvia's prime minister said in Prague.

"The bigger you are, the bigger your economy, the bigger the responsibility is as well," Kariņš warned, adding that "we have to work together to keep the competition level across all member states", and that "not all countries have the budgetary ability to provide such assistance."

"We have to take tackle this structurally, otherwise the counties that have more money can put more money in, which is detrimental to the internal market," Kaja Kallas, Estonia's prime minister said on her arrival.

"The problems is that every country is doing their separate package, which means a huge amount a money go out of out budget and is making us weaker because we are not using the money on anything else," she said.

Belgian prime minister Alexander De Croo told the Financial Times on Thursday that national support packages, such as the €200bn German plan, risked "degrading" the single market.

The liberal politician argued for the need to bring down energy prices quickly, or face declining industrial activity and social unrest.

Rutte backs Scholz

On the other hand, Dutch prime minister Mark Rutte, who has traditionally been leading frugal EU countries within the bloc, was supportive of Berlin.

"I think Germany has absolutely the possibility and sovereignty to take those decisions, like we are taking them and many others," he told reporters in Prague.

The criticism for Germany has also increased the calls for a joint fund to finance the economic cushions for member states.

Portugal's prime minister Antonio Costa said his county would like use the Covid-19 recovery fund.

"Before we start to discuss whether new debt is needed, we could have a more practical discussion: what is available from the existing resources mobilised by the EU," he told reporters.

There are still €225bn in unused loans from the Covid-19 recovery fund, which could be redistributed.

"There is money available. I don't understand why we need another European fund," one EU diplomat said, adding that investing recovery money could also be speeded up.

'Heated debate'

A senior EU official on Wednesday confirmed a heated debate among EU leaders is expected for Friday.

The official added some of the details could potentially put other leaders' at ease about the German plans. "But you need leaders to discuss this," the official added.

Scholz has been defending the plan for a week since it was first announced.

The chancellor said other countries had also set out their own relief packages and Germany was working hard on improving energy security for the whole region.

The worry among EU countries is similar to what they feared economically at the beginning of the Covid-19 crisis: that the economic impact of the pandemic would exacerbate differences among EU countries.

That time French president Emmanuel Macron persuaded Germany's then chancellor Angela Merkel to help create a EU-wide recovery fund.

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