The EU does not need a new debt fund

Olaf Scholz (left) and Emmanuel Macron

Germany and France would benefit from the relaxation of EU state aid rules.

(Photo: dpa)

In Brussels, the crucial question is again: How do you feel about a new debt fund? The 27 heads of government want to discuss a European response to the Inflation Reduction Act (IRA) at a special summit on February 9th.

It’s about the $369 billion package that the US government wants to use to lure key green industries into their country. Some state leaders would like a new bazooka to compete in the race between “Made in Europe” and “Made in America”.

This time, the EU vehicle will be called the “Sovereignty Fund” and will finance everything from battery factories to hydrogen infrastructure and critical raw materials. For Chancellor Olaf Scholz and his Finance Minister Christian Lindner, this means the next defensive battle. They like to point out that the EU budget and the Corona recovery fund already have hundreds of billions earmarked for green investments – and this money is far from being spent. And they are right.

The problem in some European countries is that they can’t find enough worthwhile projects to invest the money in. The call for more debt therefore comes at least at the wrong time.

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First of all, it would be appropriate to adjust the criteria for the allocation of funds, perhaps in order to be able to fund more projects in more sectors. The Commission is already working on an analysis of which sectors could use additional support.

In the end there will be a compromise

And yet there is a familiar political logic at work in Brussels that, sooner or later, is likely to lead to a new investment fund. The IRA is the kind of challenge no politician can ignore.

Some countries such as Germany and France therefore want to relax EU state aid regulations in order to be able to support their key industries. This in turn alarms a number of smaller, financially weaker countries. They demand compensation so that they do not suffer any disadvantages in the internal EU location competition.

Scholz will hardly be able to escape this argument. In the Brussels bazaar, it is rare for anyone to be able to assert their position 100 percent. And so it is very likely that Germany will at least partially give in, as it did with the gas price brake or the tank deliveries.

More: EU Commission leaders warn of a subsidy race

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