Press play to listen to this article
As the EU rolls out its bailout to counter the economic fallout from the coronavirus pandemic, Russian President Vladimir Putin’s invasion of Ukraine means Brussels must weigh a new round of financial support measures.
The European Commission is exploring options to protect its economy from the backlash of Western sanctions on Russia, including soaring energy prices and potential retaliatory countermeasures from the Kremlin, five EU officials and diplomats told POLITICO.
The package, which could be adopted as early as next week before the summit of European leaders in Paris next Thursday and Friday, is still under discussion. Initial discussions, however, suggest that its elements could include the reallocation of loans, new debt to raise funds for loans in the event of energy price spikes, and new guidance on expedited approval of state grants.
“In the short term, there is a set of measures on which we have worked with the European Commission, in particular with [European Commission Executive Vice President] Margrethe Vestager, which may concern either state aid or special loans for companies… They must first target the most fragile companies, gas-intensive companies and companies exposed to international competition. This is the framework we are defining and which has been validated,” French Finance Minister Bruno Le Maire told a press conference on Wednesday, after an online meeting of EU finance ministers.
EU countries have yet to be formally consulted, but some initial reactions from some diplomats have been cold, with one describing them as the Commission “getting ahead”.
In recent days, EU leaders have called on Brussels to make these kinds of proposals: “If you have a situation of sanctions and counter-sanctions, it will have an impact,” Belgian Prime Minister Alexander De Croo said on Tuesday. to journalists. at European level, we urge the European Commission to develop a set of measures to limit the economic impact.
Italian Prime Minister Mario Draghi, one of the countries that would be hard hit if Putin shut off the gas taps, told senators on Tuesday that “the war will have consequences on the price of energy, which we will have to face with new measures”. to support businesses and families. The European Union should facilitate them, to avoid excessive repercussions on the recovery.”
One element the Commission is working on and which seems to have informal support from capitals is a new ad hoc temporary state aid framework, much like the one adopted at the start of the COVID-19 pandemic. This would detail the conditions under which capital would be allowed to support their companies affected by the Ukraine crisis and guarantee a fast-track approval from Brussels. Ongoing discussions focus on what the scope, duration and trigger event of such a new framework would be.
Brussels could also invite EU countries that have not exhausted their rights to loans under the bloc’s Recovery and Resilience Facility, the £723.8 billion joint coronavirus recovery program. euros, to ask for more funding. No country except Italy has requested the full amount of the loans. Any new request for financing under the facility should be accompanied by an expenditure plan subject to the approval of the Commission and the Council.
A third option would be for the EU to issue new debt to raise funds which it would then lend to capital at attractive rates, which could be used to counter another spike in energy prices. EU treaties allow the bloc to provide financial assistance to its members in “exceptional circumstances beyond its control” and “in particular if serious difficulties arise in the supply of certain products, in particular in the field of ‘energy”.
Officials stressed that this would require approval from EU capitals and some diplomats noted that increasing debt was not their preferred option. “Better to look into existing instruments than to start fights over new funds,” said an EU diplomat.
Another EU diplomat was even more scathing: “The Commission is once again getting ahead of itself. Of course, we all need to carefully consider the economic and financial consequences of the current situation. But for some time to come, EU member states are still largely benefiting from the recovery fund. These additional billions should help them get through the current situation. In any case, the debate is taking a wrong turn: our priority must be to intervene urgently to help Ukraine defend its statehood and preserve its economic base. – and not looking for extra EU dollars.”
The Commission declined to comment on any future measures.
Bjarke Smith-Meyer, Lili Bayer and Barbara Moens contributed reporting.
You want more analysis of POLITICS? POLITICS Pro is our premium intelligence service for professionals. From financial services to trade, technology, cybersecurity and more, Pro delivers the real-time intelligence, in-depth insights and scoops you need to stay ahead. E-mail [email protected] to request a free trial.