Just as the economy takes a breather from the pandemic’s impact, some countries are seeking for another financial safety net.
As the EU is easing its rescue package to neutralize the economic fallout from the coronavirus pandemic, Russian President Vladimir Putin’s invasion of Ukraine forces Brussels to assess another raft of financial support measures.
The European Commission is seeking options to protect its economy from the backlash of Western sanctions on Russia, including rising energy prices and potential vindictive countermeasures from the Kremlin, five EU officials and diplomats stated in recent reports.
Other suggestions included repurposing of existing loans, fresh debt to raise money for loans in case of energy price spikes, and new guidance on fast-track approval of state subsidies.
Talks from the online meeting of EU finance ministers state that in the short term, there is a set of measures on which the European Commission can relate either to state aid or to provide special loans for companies. They must target in priority the weakest companies, the companies that are gas-intensive and the companies that are exposed to international competition; a framework that is yet to be validated.
EU leaders have been requesting from Brussels to make proposals such as: “Introducing sanctions and counter sanctions, that will have an impact,” Belgian Prime Minister Alexander De Croo told reporters. “Hence, at the European level, we strongly urge the European Commission to develop a package of measures to limit the economic impact.”
Italy is one of the countries that will be severely impacted if Putin turns off the gas taps. Prime Minister Mario Draghi told senators that “the war will have consequences on the price of energy, which we will have to face with new measures to support companies and families. It is appropriate that the European Union facilitates them, to avoid excessive repercussions on the recovery.”
A new ad hoc temporary framework for state aid, similar to the one adopted at the onset of the COVID-19 pandemic, has been worked on by the Commission, and seems to have the informal support of capitals. This would detail the conditions under which capitals would be allowed to support their companies affected by the Ukraine crisis, and ensure a rapid approval from Brussels. Other discussions focus on what would be the scope, the duration and the cause of events for such a new framework.
Brussels may approach EU countries that haven’t used up their entitlement of loans under the bloc’s Recovery and Resilience Facility, the €723.8 billion joint-debt coronavirus recovery package, in a request for more financing. No other country besides Italy has requested the full amount of loans. Any new financing appeals under the facility require a spending plan subject to the Commission and Council’s approval.
A third option is for the EU to issue fresh debt to raise money that would later proceed to contribute to capitals at attractive rates that could be used to oppose further spikes in energy prices. The EU treaties authorize the association to provide financial assistance to its members under “exceptional circumstances beyond its control,” and “in particular if severe difficulties arise in the supply of certain products, notably in the area of energy.”
Officials stressed this would require a signoff from EU capitals something that diplomats wanted to bypass; raising a new debt. “Better look into existing instruments than start fights about new money,” said an EU diplomat.
Another was even more brutal with his statement: “The Commission is once more getting ahead of itself. We all need to look carefully at the economic and financial consequences of the current situation. But for the coming future, EU member states will still benefit largely from the recovery fund. Those extra billions should help them weather the current situation. In any case, the debate is taking a wrong turn: Our priority must be to urgently help Ukraine defend its statehood and preserve its economic basis, and not to look for some extra bucks from the EU.” The Commission is yet to comment on any potential upcoming measures.