5th Feb 2023

Putin's energy war opens up north-south rift over EU funds

  • Mario Dragi speaking to Charles Michel in Prague on Friday. Draghi has slammed the €200bn Germany energy plan as "unfair" (Photo: European Council)
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European leaders met in Prague to debate solutions to the energy and economic crisis on Friday (7 October).

Putin's energy war has put European solidarity to the test, as some countries have been better able to shield households and businesses from energy inflation than others.

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Germany's €200bn plan to help households and businesses until 2024 unleashed a storm of criticism earlier this week — almost double the amount the next biggest economies, France and Italy, have provided.

Some leaders criticised the move on Friday as lacking in solidarity, saying it could lead to unfair advantage.

"We should not fight each other. We have a common enemy, and we should stick to that. I think different packages where we outcompete each other are not good for overall unity," Estonian prime minister Kaja Kallas said on arrival in Prague.

One option discussed was a new European loan fund financed by commission borrowing, as laid out by French and Italian commissioners in Brussels, Thierry Breton and Paolo Gentiloni on Monday, which found strong backing from some countries, including France.

But forceful resistance from the frugal states — Germany, Sweden, Denmark and the Netherlands — nipped talk of new EU borrowing in the bud.

Instead, EU Commission president Ursula von der Leyen pledged to expand an already existing fund, RepowerEU, which was set up in May to help member countries buy replacement fuel and speed up renewable investments.

"RepowerEU has all that is necessary to invest in critical infrastructure but also help businesses and households install heat pumps and insulation," she told press in Prague.

Existing funds first

Out of the €300bn RepowerEU budget, €225bn of unclaimed pandemic-era loans could be repurposed by countries to address energy problems, EU executive vice president Valdis Dombrovskis said this week.

This was met with approval by some: "I do not understand why we would need another European fund," an EU diplomat, speaking anonymously, told EUobserver, indicating existing funds should be spent first.

But less wealthy countries have criticised the German plan for its direct support of businesses which could gain an unfair advantage over competitors.

And payments from the EU loans likely can not be freely assigned to support businesses or households.

"The €225bn has to be used for reforms," an EU official told EUobserver. "The level playing field has to be maintained, and direct income support will likely not be accepted."

Another option mentioned by negotiators from the frugal north is to speed up the €700bn pandemic funds investments, which have already been assigned but not yet been disbursed.

Portuguese prime minister António Costa on Thursday also argued to "reprogramme" the money so that it can be used to help struggling businesses and families.

This also is unlikely to happen as the official said individual measures under the already approved pandemic recovery plans can only be renegotiated "for justified reasons" or if the original plan is no longer financially feasibly due to rising costs.

EU Leaders will meet again on 20 October.

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Report: Renewables best way to deal with inflation

Some EU politicians want to expand gas supply to deal with high energy prices, but global think tanks Ember and E3G claim a better way to deal with high energy prices is by fast-tracking renewables.

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