€300 billion for energy independence + r • Table.Briefings

Dear reader,

for Timothy Garton Ash, things are clear: “believe that the only adequate response to the truly heroic defense of European values being made by Ukraine at the moment is to make Ukraine a candidate for membership of the EU,” the British historian said yesterday at our Europe.Decisions conference. He very much hopes that the European Council will pave the way for Kyiv – and not, in typical Brussels fashion, say “yes” but basically mean “not yet” or “maybe”.

Timothy Garton Ash was one of 30 speakers at the event – within 150 minutes, he offered a very dense classification of the decisions that are pending in Europe at this time. The Oxford professor no longer has to convince Ursula von der Leyen: the Commission president is in favor of accession talks with Ukraine and yesterday unveiled plans for up to €9 billion in emergency aid for the country. Eric Bonse has the details.

Reconstruction aid was certainly not the only initiative that von der Leyen presented yesterday. The Commission outlined ways in which the EU can make itself independent of Russian energy supplies – we have already reported on many aspects in recent days. Critics, however, complain that the authority should focus even more on the obvious solution: not consuming the energy in the first place. It also remains unclear where the billions to finance the measures will come from, as Stephan Israel and Manuel Berkel report.

From the EU Commission’s point of view, cooperation is needed in another area that has taken on a completely new urgency since the Russian war of aggression in Ukraine: the state of the armed forces in Europe. “Duplication and fragmentation” is what Foreign Affairs Commissioner Josep Borrell sees in European defense. Europe needs to spend more money, he said, and spend it better. This means that states should procure equipment jointly. In doing so, they could benefit from a proposed €500 million financial instrument, according to the Commission, writes Ella Joyner in her analysis.

Your
Till Hoppe

REPowerEU: €300 billion for energy independence

“We need to reduce our dependence on Russia for energy as quickly as possible,” Commission President Ursula von der Leyen said Wednesday at the presentation of REPowerEU. The plan will help save energy, accelerate the phase-out of fossil fuels and trigger investments in renewable energies, she said. The EU Commission wants to mobilize more than €300 billion for this purpose. €75 billion are to flow in the form of subsidies, the rest in the form of loans. An additional €10 billion euros are earmarked for pipelines between member states and LNG terminals, von der Leyen said.

However, the bulk of the money is merely to be reallocated. The bulk, amounting to €225 billion, is to come from the Recovery and Resilience Facility (RRF), the temporary reconstruction fund for dealing with the COVID-19 crisis. The Commission also wants to allow member states to transfer resources from other funds to the RRF. The Commission’s idea of auctioning emission allowances from the Market Stability Reserve to mobilize an additional €20 billion drew fierce criticism from climate associations.

Germanwatch described the move as an “idea from the climate policy madhouse.” Deutsche Umwelthilfe accused Brussels of allowing additional CO2 emissions in order to finance new gas and oil infrastructure. EU Parliamentarian Peter Liese (EPP) criticized the Commission for wanting to put the money into the RRF. Here the Parliament has practically no say and cross-border European projects are not funded.

Solar obligation from 2030

The Commission’s plans for greater expansion of renewable energies received a unanimously positive reception. The target of the Fit for 55 package for renewables is to be raised from 40 percent to a share of 45 percent by 2030. The share of wind and solar power in electricity production is to be doubled by 2030 compared to today. An additional 600 gigawatts of solar capacity alone is to be added by 2030. To achieve this goal, solar installations are to be mandatory from 2026 for all new public buildings, factories or commercial buildings above a certain size. From 2030, the solar obligation is also to apply to private homes.

The commission also wants to address the long and complex approval processes for large wind farms. Today, it can take six to nine years before construction can begin, von der Leyen said. The commission wants to reduce the duration for plants, including connecting lines, to one year.

As a second axis, the EU is to further diversify the energy supply and intensify the search for alternative suppliers. The Commission is relying on the new energy platform to facilitate the joint procurement of LNG and hydrogen. The aim is to achieve more favorable conditions and more efficient use of infrastructures such as liquefied natural gas terminals.

“High energy prices are part of the solution”

In the opinion of many observers, the package pays too little attention to the third axis of REPowerEU, energy saving. “Potential is left untapped in energy efficiency,” criticizes German Green MEP Rasmus Andresen. “The REPowerEU plan places too little focus on concrete, short-term measures that reduce demand for fossil fuels in Europe,” says Matthias Buck of Agora Energiewende.

The Commission’s signals to allow member states to temporarily intervene in the gas and electricity markets are also contradictory. “Subsidies against high energy prices are politically intuitive, but economically they remain fundamentally wrong,” said Hertie School economist Lion Hirth yesterday at Table.Media’s Europe.Decisions. digital conference. “The most important thing we can do is save energy. Appeals are good, but financial incentives are better. High energy prices hurt, but they are part of the solution.”

Regulated end-customer prices are also the completely wrong signal in geopolitical terms: “Such subsidies increase demand and the price on the wholesale markets. In the end, Putin and Gazprom are the ones who earn the most from the subsidies.”

Federal government open to higher efficiency target

On paper, energy saving does have a significant part to play in the Commission’s plans. Efficiency in residential buildings and industry is expected to contribute as much to the REPowerEU goals as gas procurement from alternative suppliers. Nevertheless, there is still potential at crucial points. The Commission proposes an end date for the installation of purely fossil-fuel heating systems – but 2029 is rather late.

The Commission now wants to raise the central target in the Energy Efficiency Directive compared to its first draft – from 9 percent to 13 percent compared to a reference path. However, the EU Parliament’s rapporteur, Niels Fuglsang (S&D) had called for 19 percent less energy consumption by 2030. Increased prices for CO2 certificates and fossil energies had increased the economic savings potential compared to earlier studies, he reasoned.

Germany is still lagging behind the EU debate on energy-saving targets. A spokeswoman for the German Economy Ministry told Europe.Table on Wednesday that, on the one hand, the government supports the older target of 9 percent energy savings proposed by the Commission. “In addition, against the background of the current situation, the German government is open to discussing an increase in the EU energy efficiency targets.” Stephan Israel and Manuel Berkel

Reconstruction: expensive plans for Ukraine

By

Eric Bonse

The EU Commission wants to provide Ukraine with long-term support and is proposing new instruments for this purpose. A “Ukraine reconstruction platform” is to coordinate international financial assistance for reconstruction, and a “RebuildUkraine Facility” is to secure financing.

The EU Commission wants to take a leading role, said Commission President Ursula von der Leyen in Brussels on Wednesday. Initially, the aim is to provide emergency aid of up to €9 billion. The money is to flow in the form of low-interest loans for which the Commission will borrow on the capital markets.

In the course of the EU accession talks planned for June, however, there is also to be money for investments and reforms. Von der Leyen did not provide details. Ukraine’s head of government Denys Shmyhal estimates the long-term costs of reconstruction at at least $600 billion.

The Europeans have a “strategic interest” in Ukraine getting back on its feet quickly, von der Leyen said. In Russia’s war of aggression, the country was on the “front line” and defending “our values,” she said. That is why reconstruction must be supported.

Borrell: “We have the money in our pockets”

In doing so, the EU Commission could build on the experience with the Corona Reconstruction Fund, said Budget Commissioner Johannes Hahn. For this fund, the EU has taken on €750 billion in debt. However, this should remain a one-time exception.

Only on this condition had Germany and other EU countries agreed to the Corona Plan. Nevertheless, plans are already circulating in Brussels to create a new debt-financed fund for Ukraine. Some EU politicians are also considering tapping into the Russian Central Bank’s foreign exchange reserves.

The EU and the US had frozen foreign currency worth an estimated $300 billion after the Ukraine war began. Now they could be seized, says EU foreign affairs chief Josep Borrell. “We have the money in our pockets,” the Spaniard said. Now, he said, all that remains is to transfer it to Ukraine.

A corresponding legal basis is being worked on, according to Commission sources. In addition to the reserves of the Russian Central Bank, the frozen assets of Russian oligarchs are also at stake. However, the legal situation in the member states is currently still very different.

EU Economic Commissioner Valdis Dombrovskis said that all options were being examined. However, this could still take some time, as the legal situation is very complex. Assets can only be seized on the basis of the criminal law of the country in which they are located. In addition, the problem of compensation must be clarified.

Parliament and federal government skeptical

The plans were met with skepticism in the European Parliament. Vice President Nicola Beer said: “The reconstruction of Ukraine will be the task of a generation. Europe will not duck this task. However, the calls for new, European debt are wrong.”

Markus Ferber, CSU MEP and economic policy spokesman for the EPP Group, expressed a similar view. “You cannot solve all problems with new debt. But you can very well create many new problems with new debts.” Now, he said, there was a threat of a dam bursting.

The German government is also on guard. “The Next Generation EU stimulus program still has hundreds of billions in unspent funds,” said Jörg Kukies, State Secretary in the German Chancellery, at Table.Media’s Europe.Decisions conference.

As a result, he said, the federal government believes these hundreds of billions that are available should be spent quickly now. “The programs are almost all approved. Before we think about the next program, we should think about the one we haven’t spent yet.”

German Finance Minister Christian Lindner (FDP) also rejects renewed joint borrowing in the EU. The Commission’s spending plans must be approved by the member states. A first debate is expected at the EU summit at the end of May.

Commission wants to motivate states to procure armaments jointly

“Everywhere we see duplication and fragmentation,” EU foreign affairs chief Josep Borrell said Wednesday in Brussels. “We need to spend more money, but above all we need to spend it together to spend it better.”

In the short term, member states that have sent a lot of weapons to Kyiv for the fight against Russia need to increase their ammunition and transport stocks, the Spaniard said. It is also a matter of replacing Soviet-era legacy systems and reinforcing air and missile defense systems, according to a Commission statement. In light of that goal, the Commission, together with the European Defense Agency (EDA), is immediately setting up a task force. This is to identify ways to close short-term security gaps.

States “willing to procure together to address the most urgent and critical gaps” could benefit from a proposed €500 million financial instrument, the commission release said.

The war has once again drawn attention to the state of the armed forces in Europe. In March, the EU Commission was tasked, with the help of the EDA, with identifying the weaknesses and making appropriate proposals. These were presented Wednesday by Borrell and his colleagues Thierry Breton and Margrethe Vestager.

In the long term, the Commission and the EDA believe the EU needs to invest more in ships, tanks, drones, air refueling capabilities for aircraft and coastal defense. The conflict has also shown the importance of satellite infrastructure, among other things, for detecting critical threats.

12 different types of tanks in Europe

After years of shrinking spending – a kind of “stealth disarmament process,” Borrell said – EU countries have pledged to put significantly more money into their armies and navies in the wake of Russia’s invasion of Ukraine. In another press conference, Commission President Ursula von der Leyen said she would spend €200 billion more at the national level in the coming years. This additional money must be spent in a coordinated way.

It is no news that defense procurement in Europe is highly fragmented. For more than a decade, EU states have been trying to counter this fragmentation. Procuring equipment from domestic companies is considered inefficient and expensive. Partly for this reason, the European Defense Fund (EDF) was created, with €8 billion available over the period 2021 to 2027.

Borrell cited the example Wednesday of the United States, where there is only one type of tank. In Europe there are 12. “The logistical costs, the duplication and the lack of interoperability are evident in our air forces, in our Navy, everywhere.”

Hannah Neumann, Green Party MEP, welcomed the proposal, saying, “It has long been known that we can save many billions and better protect our citizens with joint procurement.”

Her CDU colleague in the European Parliament, Michael Gahler, said the Commission was taking the right, but also long overdue path: “We can no longer afford small-scale and isolated solutions.”

More competencies for commission controversial

For the Commission, the initiative could be a milestone for its own role in EU defense. Some EU states have traditionally closely guarded control over defense spending as a national competence. Fears that an “EU army” could undermine the sovereignty of member states have long existed. There is also criticism of a militarization of the European Union, which often emphasizes its identity as a peace project.

In recent weeks, France’s President Emmanuel Macron, perhaps the most vocal proponent of a more robust EU defense policy, and Italy’s head of government, Mario Draghi, have raised the issue of fragmentation again. The former called for new EU debt to finance a defense overhaul, while the latter called for a special conference to address the issue.

However, it is not a given that the Commission will lead the way on defense spending or that this is desirable. According to Daniel Gros of the Centre for European Policy Studies (CEPS), more money and coordination by the EU Commission is one possible approach. However, it is more important for a member state to also provide clear leadership for a joint defense project.

“We often have the problem that no country is really responsible and each country adds its own wishes, so in the end the costs then get out of hand,” Gros said at Table.Media’s Europe.Decisions. conference.

There is also little willingness in the German Defense Ministry to cede decision-making authority to the EU Commission. “Whether a purely European solution and coordination will make it easier, I don’t see immediately,” said Henning Trieschmann, head of unit for the Common Defense Policy at the conference. Ella Joyner

Federal government wants to strengthen offshore wind power with other North Sea states

The German government wants to significantly boost the expansion of offshore wind energy and work more closely together with Denmark, Belgium, and the Netherlands. The four North Sea states want to quadruple their offshore capacity by 2030 – to a joint minimum of 65 gigawatts, as the heads of government agreed on Wednesday in the city of Esbjerg on the Danish coast. By 2050, the capacity is to be expanded to 150 gigawatts, a tenfold increase compared to today.

“This is not just a declaration, but the toolbox for what we have to do and will do in the near future,” said German Chancellor Olaf Scholz (SPD), who traveled to Denmark with Vice Chancellor Robert Habeck (Greens) to sign the declaration by the four countries. “With this, we are strengthening the European expansion of renewable energies and thus further reducing dependence on gas imports,” Habeck said.

According to the German government’s so-called Easter Package, the German capacity of offshore wind farms is to increase from 7.8 gigawatts to at least 30 gigawatts by 2030. 80 percent of Germany’s electricity is to come from renewable sources by then.

Beyond the expansion targets, the four North Sea states want to strengthen their cooperation on the future production of green hydrogen, the generation of which produces no greenhouse gas CO2, from offshore wind energy and establish joint energy islands and hubs in the North Sea. dpa

Gabriel: reduce dependence on China

Former Vice Chancellor Sigmar Gabriel warns against also questioning economic relations with China in light of the conflict with Moscow. It is true that it has “failed” to transfer the model of securing peace through economic interdependence, which has been successful in Europe, to Russia, said the chairman of Atlantik-Brücke at Table.Media’s Europe.Decisions. conference. However, that does not mean the strategy of change through trade has failed per se.

However, the EU must try to reduce its dependence on China as well.“We will have to try to position ourselves more broadly,” Gabriel said. “However, that can’t be done overnight and especially not in a country that, like Germany, is more integrated into international value chains than any other country in the world.” The idea of becoming quasi-autonomous and trading only with democratic states will therefore not work.

Liana Fix, a Russia expert at the Körber Foundation, expects the Ukraine war to lead to a new bloc formation in the long term, with China as the leading power of the eastern power bloc. “At the moment, it looks like Russia will not be able to be its own pole in the long term, and that’s why we will see an East-West bloc formation in which Russia will be more or less part of the Chinese sphere of influence,” she said at the conference. Russia is likely to be permanently weakened economically and militarily by the war and sanctions and will not be able to be a pole of its own in the international order.

The European Union will also not be a pole of its own in the long run, Fix said. “Europe, despite all its efforts to achieve strategic autonomy, is too weak militarily in the long term to survive without the United States in the increasingly militarized geopolitics of this world.” Europe must therefore position itself as a strong partner within the Western and transatlantic alliance. tho

Ombudswoman: transfer of EU officials to free enterprise “problematic issue”

Rules on EU officials moving to the private sector are not strict enough, according to European Ombudsman Emily O’Reilly. There is a tendency to underestimate harmful effects when officials bring their knowledge and networks to the private sector, she said Wednesday at the launch of her annual report. “If this practice is not brought under control now, a culture may take root that could undermine public confidence in the integrity and expertise of the EU institutions,” according to O’Reilly.

The EU administration is at a critical juncture in terms of how it deals with these lateral moves, she said. The movement of regulators’ representatives into economic sectors they used to regulate themselves has become a “problematic issue” in Brussels, the Irish politician said. However, she said she had not found any maladministration.

Criticism of changes from Competition Directorate General

In the past, changes of high-ranking employees from the Directorate General for Competition in particular had caused criticism. The department is responsible, for example, for prosecuting violations of European competition law and imposing penalties. As reported by the news portal Politico, among others, several employees have in the past moved to law firms that also work for companies with which the EU Commission is involved in legal disputes.

The Ombudsman examined a sample of 100 decisions on-page changes from 2019 to 2021. Of those the commission had banned only two jobs. Among other things, she is now calling for jobs to be temporarily banned where risks cannot be offset by conditions or conditions cannot be credibly monitored and enforced. In addition, approval for a new job should be made conditional on EU officials receiving a commitment from their new employer to publish any conditions on their website. dpa

Microsoft revises licensing deal in EU antitrust dispute

In the struggle to settle long-standing antitrust disputes with the EU Commission over its cloud business, the US software giant is revising its licensing deals. It will be made easier for European cloud providers to compete, Microsoft President Brad Smith announced. He said the changes are aimed at removing key caveats. This is the first step, but not necessarily the last one the company will take.

The criticism centers on packaged solutions for Microsoft Office, which are now to be handled more flexibly. In recent months, some European cloud providers, including NextCloud from Germany and OVHcloud from France, had raised concerns about certain software licensing terms and practices from Microsoft. rtr

The ECB and Fiscal Policy Capture

By Willem H. Buiter

Willem H. Buiter is associate professor of international and public affairs at Columbia University.

Since the second quarter of 2021, inflation in the United Kingdom, the United States, and the eurozone has far exceeded their central banks’ 2% target. This surge could well be explained by the unexpected severity and duration of the COVID-19 pandemic, the fallout from Russia’s war in Ukraine, and repeated errors of judgment by the Bank of England, the US Federal Reserve, and the European Central Bank.

But another possible explanation is monetary policy was subject to fiscal dominance or fiscal capture. In this interpretation, major central banks have engaged in aggressive low-interest-rate and asset-purchase policies to support their governments’ expansionary fiscal policies, even though they knew such policies were likely to run counter to their price-stability mandates and were not necessary to preserve financial stability. The “fiscal capture” interpretation is particularly convincing for the ECB, which must deal with several sovereigns that are all facing heavily in debt. Greece, Italy, Portugal, and Spain are all fiscally fragile.

Furthermore, France, Belgium, and Cyprus could also face sovereign-funding problems when the next cyclical downturn hits, or when risk-free interest rates normalize from the past decade’s extraordinarily low levels, or when sovereign risk is priced more realistically.

ECB still preoccupied with financing government deficits

In April 2022, headline inflation for the eurozone was 7.5%, and core inflation (excluding food and energy) was 3.5%. Yet the ECB remains intensely concerned with financing sovereign deficits. This was apparent in its March 24, 2022, announcement that it would continue to accept Greek government bonds as collateral until at least the end of 2024.

Greek sovereign debt does not meet the ECB’s investment-grade credit requirement, but it has been purchased and held by the Eurosystem (the ECB and member states’ central banks) under the Pandemic Emergency Purchase Program (PEPP) since March 2020.

In December 2021, the ECB Governing Council announced that it would discontinue net asset purchases under the PEPP at the end of March 2022. Yet it also decided that the maturing principal payments would be reinvested until at least the end of 2024, so “the future roll-off of the PEPP portfolio [could] be managed to avoid interference with the appropriate monetary stance.”

Moreover, in March 2022, the Governing Council made clear that it might continue to buy and accept as collateral the debt of other governments that could fall below investment grade. The ECB “reserves the right to deviate also from credit rating agencies’ ratings if warranted in the future, in line with its discretion under the monetary policy framework, thereby avoiding mechanistic reliance on these ratings.”

All told, the Eurosystem’s holdings of public-sector securities under the PEPP at the end of March 2022 amounted to more than €1.6 trillion ($1.7 trillion), or 13.4% of 2021 eurozone GDP, and cumulative net purchases of Greek sovereign debt under the PEPP were €38.5 billion (21.1% of Greece’s 2021 GDP). For Portugal, Italy, and Spain, the corresponding GDP shares of net PEPP purchases were 16.4%, 16%, and 15.7%, respectively.

New instrument to support member states

The Eurosystem’s Public Sector Purchase Program (PSPP) also made net purchases of investment-grade sovereign debt. From November 2019 until the end of March 2022, these totaled €503.6 billion, or 4.1% of eurozone GDP. In total, the Eurosystem bought more than 120% of net eurozone sovereign debt issuances in 2020 and 2021.

Now, the ECB is said to be working on a “new instrument” to support eurozone member states confronting higher borrowing costs stemming from the ECB’s own expected future policy-rate increases. The sovereign yield spreads on risky eurozone sovereign debt are rising again – with the Italy-Germany ten-year yield spread reaching 2% on May 10, 2022 – at a time when many vulnerable sovereigns are still planning additional large net debt issuances.

I expect that either the PSPP eligibility rules will be changed to allow the purchase of sub-investment grade debt, or that a new PEPP-like facility will be created for the purpose. Either way, the ECB is the only institution with the resources and the necessary reaction speed to engage in fiscal-rescue operations. The entity specifically created to address eurozone sovereign debt issues, the European Stability Mechanism, has neither the deep pockets nor the flexibility to respond promptly and decisively to a looming sovereign funding crisis.

Expected continuation of bond purchases

Indeed, as of April 2022, the total amount of loans disbursed by the ESM (and its predecessor) since 2010 was just €295 billion, or 2.4% of GDP. And Germany has just rejected a proposal by the ESM to create a new permanent aid fund worth €250 billion (about 2% of eurozone GDP).

Whenever the ECB starts raising its policy rates (which should be soon, though it will be too little, too late), I expect that it will continue its bond purchases. Most likely, these will be targeted at the high-risk sovereign debt issued by countries like Greece and Italy, though targeted purchases of corporate bonds and asset-backed securities could also be part of the “new purchase program.”

When such asset purchases occur under disorderly market conditions, they can be justified as “market maker of last resort” measures. That will likely be the case with Eurosystem purchases of corporate debt, provided that these are reversed as soon as orderly market conditions are restored. But by becoming a long-term holder of a growing stock of vulnerable sovereign debt, which is not justifiable on the grounds of systemic financial stability, the Eurosystem will be engaging in still more fiscal-support (and sometimes fiscal-rescue) operations.

Of course, no finance minister of a member country lays siege to the ECB’s headquarters, so one could argue No member-state finance minister is laying siege to the ECB’s headquarters, of course, so one could argue that this manifestation of fiscal capture is voluntary or internalized. But that does not mean it is not detrimental to the objective of price stability.

In cooperation with Project Syndicate, translated from English by Sandra Pontow.

EUROPE.TABLE EDITORS

Till
Hoppe

Charlotte
Wirth

Falk
Steiner

Timo
Landenberger

Corinna
Visser

Lukas
Knigge

Eric
Bonse

Sarah
Schaefer

Manuel
Berkel

Lisa-Martina
Klein

Markus
Grabitz

Stephan
Israel

Claire
Stam

Dear reader,

for Timothy Garton Ash, things are clear: “believe that the only adequate response to the truly heroic defense of European values being made by Ukraine at the moment is to make Ukraine a candidate for membership of the EU,” the British historian said yesterday at our Europe.Decisions conference. He very much hopes that the European Council will pave the way for Kyiv – and not, in typical Brussels fashion, say “yes” but basically mean “not yet” or “maybe”.

Timothy Garton Ash was one of 30 speakers at the event – within 150 minutes, he offered a very dense classification of the decisions that are pending in Europe at this time. The Oxford professor no longer has to convince Ursula von der Leyen: the Commission president is in favor of accession talks with Ukraine and yesterday unveiled plans for up to €9 billion in emergency aid for the country. Eric Bonse has the details.

Reconstruction aid was certainly not the only initiative that von der Leyen presented yesterday. The Commission outlined ways in which the EU can make itself independent of Russian energy supplies – we have already reported on many aspects in recent days. Critics, however, complain that the authority should focus even more on the obvious solution: not consuming the energy in the first place. It also remains unclear where the billions to finance the measures will come from, as Stephan Israel and Manuel Berkel report.

From the EU Commission’s point of view, cooperation is needed in another area that has taken on a completely new urgency since the Russian war of aggression in Ukraine: the state of the armed forces in Europe. “Duplication and fragmentation” is what Foreign Affairs Commissioner Josep Borrell sees in European defense. Europe needs to spend more money, he said, and spend it better. This means that states should procure equipment jointly. In doing so, they could benefit from a proposed €500 million financial instrument, according to the Commission, writes Ella Joyner in her analysis.

Your
Till Hoppe

REPowerEU: €300 billion for energy independence

“We need to reduce our dependence on Russia for energy as quickly as possible,” Commission President Ursula von der Leyen said Wednesday at the presentation of REPowerEU. The plan will help save energy, accelerate the phase-out of fossil fuels and trigger investments in renewable energies, she said. The EU Commission wants to mobilize more than €300 billion for this purpose. €75 billion are to flow in the form of subsidies, the rest in the form of loans. An additional €10 billion euros are earmarked for pipelines between member states and LNG terminals, von der Leyen said.

However, the bulk of the money is merely to be reallocated. The bulk, amounting to €225 billion, is to come from the Recovery and Resilience Facility (RRF), the temporary reconstruction fund for dealing with the COVID-19 crisis. The Commission also wants to allow member states to transfer resources from other funds to the RRF. The Commission’s idea of auctioning emission allowances from the Market Stability Reserve to mobilize an additional €20 billion drew fierce criticism from climate associations.

Germanwatch described the move as an “idea from the climate policy madhouse.” Deutsche Umwelthilfe accused Brussels of allowing additional CO2 emissions in order to finance new gas and oil infrastructure. EU Parliamentarian Peter Liese (EPP) criticized the Commission for wanting to put the money into the RRF. Here the Parliament has practically no say and cross-border European projects are not funded.

Solar obligation from 2030

The Commission’s plans for greater expansion of renewable energies received a unanimously positive reception. The target of the Fit for 55 package for renewables is to be raised from 40 percent to a share of 45 percent by 2030. The share of wind and solar power in electricity production is to be doubled by 2030 compared to today. An additional 600 gigawatts of solar capacity alone is to be added by 2030. To achieve this goal, solar installations are to be mandatory from 2026 for all new public buildings, factories or commercial buildings above a certain size. From 2030, the solar obligation is also to apply to private homes.

The commission also wants to address the long and complex approval processes for large wind farms. Today, it can take six to nine years before construction can begin, von der Leyen said. The commission wants to reduce the duration for plants, including connecting lines, to one year.

As a second axis, the EU is to further diversify the energy supply and intensify the search for alternative suppliers. The Commission is relying on the new energy platform to facilitate the joint procurement of LNG and hydrogen. The aim is to achieve more favorable conditions and more efficient use of infrastructures such as liquefied natural gas terminals.

“High energy prices are part of the solution”

In the opinion of many observers, the package pays too little attention to the third axis of REPowerEU, energy saving. “Potential is left untapped in energy efficiency,” criticizes German Green MEP Rasmus Andresen. “The REPowerEU plan places too little focus on concrete, short-term measures that reduce demand for fossil fuels in Europe,” says Matthias Buck of Agora Energiewende.

The Commission’s signals to allow member states to temporarily intervene in the gas and electricity markets are also contradictory. “Subsidies against high energy prices are politically intuitive, but economically they remain fundamentally wrong,” said Hertie School economist Lion Hirth yesterday at Table.Media’s Europe.Decisions. digital conference. “The most important thing we can do is save energy. Appeals are good, but financial incentives are better. High energy prices hurt, but they are part of the solution.”

Regulated end-customer prices are also the completely wrong signal in geopolitical terms: “Such subsidies increase demand and the price on the wholesale markets. In the end, Putin and Gazprom are the ones who earn the most from the subsidies.”

Federal government open to higher efficiency target

On paper, energy saving does have a significant part to play in the Commission’s plans. Efficiency in residential buildings and industry is expected to contribute as much to the REPowerEU goals as gas procurement from alternative suppliers. Nevertheless, there is still potential at crucial points. The Commission proposes an end date for the installation of purely fossil-fuel heating systems – but 2029 is rather late.

The Commission now wants to raise the central target in the Energy Efficiency Directive compared to its first draft – from 9 percent to 13 percent compared to a reference path. However, the EU Parliament’s rapporteur, Niels Fuglsang (S&D) had called for 19 percent less energy consumption by 2030. Increased prices for CO2 certificates and fossil energies had increased the economic savings potential compared to earlier studies, he reasoned.

Germany is still lagging behind the EU debate on energy-saving targets. A spokeswoman for the German Economy Ministry told Europe.Table on Wednesday that, on the one hand, the government supports the older target of 9 percent energy savings proposed by the Commission. “In addition, against the background of the current situation, the German government is open to discussing an increase in the EU energy efficiency targets.” Stephan Israel and Manuel Berkel

Reconstruction: expensive plans for Ukraine

By

Eric Bonse

The EU Commission wants to provide Ukraine with long-term support and is proposing new instruments for this purpose. A “Ukraine reconstruction platform” is to coordinate international financial assistance for reconstruction, and a “RebuildUkraine Facility” is to secure financing.

The EU Commission wants to take a leading role, said Commission President Ursula von der Leyen in Brussels on Wednesday. Initially, the aim is to provide emergency aid of up to €9 billion. The money is to flow in the form of low-interest loans for which the Commission will borrow on the capital markets.

In the course of the EU accession talks planned for June, however, there is also to be money for investments and reforms. Von der Leyen did not provide details. Ukraine’s head of government Denys Shmyhal estimates the long-term costs of reconstruction at at least $600 billion.

The Europeans have a “strategic interest” in Ukraine getting back on its feet quickly, von der Leyen said. In Russia’s war of aggression, the country was on the “front line” and defending “our values,” she said. That is why reconstruction must be supported.

Borrell: “We have the money in our pockets”

In doing so, the EU Commission could build on the experience with the Corona Reconstruction Fund, said Budget Commissioner Johannes Hahn. For this fund, the EU has taken on €750 billion in debt. However, this should remain a one-time exception.

Only on this condition had Germany and other EU countries agreed to the Corona Plan. Nevertheless, plans are already circulating in Brussels to create a new debt-financed fund for Ukraine. Some EU politicians are also considering tapping into the Russian Central Bank’s foreign exchange reserves.

The EU and the US had frozen foreign currency worth an estimated $300 billion after the Ukraine war began. Now they could be seized, says EU foreign affairs chief Josep Borrell. “We have the money in our pockets,” the Spaniard said. Now, he said, all that remains is to transfer it to Ukraine.

A corresponding legal basis is being worked on, according to Commission sources. In addition to the reserves of the Russian Central Bank, the frozen assets of Russian oligarchs are also at stake. However, the legal situation in the member states is currently still very different.

EU Economic Commissioner Valdis Dombrovskis said that all options were being examined. However, this could still take some time, as the legal situation is very complex. Assets can only be seized on the basis of the criminal law of the country in which they are located. In addition, the problem of compensation must be clarified.

Parliament and federal government skeptical

The plans were met with skepticism in the European Parliament. Vice President Nicola Beer said: “The reconstruction of Ukraine will be the task of a generation. Europe will not duck this task. However, the calls for new, European debt are wrong.”

Markus Ferber, CSU MEP and economic policy spokesman for the EPP Group, expressed a similar view. “You cannot solve all problems with new debt. But you can very well create many new problems with new debts.” Now, he said, there was a threat of a dam bursting.

The German government is also on guard. “The Next Generation EU stimulus program still has hundreds of billions in unspent funds,” said Jörg Kukies, State Secretary in the German Chancellery, at Table.Media’s Europe.Decisions conference.

As a result, he said, the federal government believes these hundreds of billions that are available should be spent quickly now. “The programs are almost all approved. Before we think about the next program, we should think about the one we haven’t spent yet.”

German Finance Minister Christian Lindner (FDP) also rejects renewed joint borrowing in the EU. The Commission’s spending plans must be approved by the member states. A first debate is expected at the EU summit at the end of May.

Commission wants to motivate states to procure armaments jointly

“Everywhere we see duplication and fragmentation,” EU foreign affairs chief Josep Borrell said Wednesday in Brussels. “We need to spend more money, but above all we need to spend it together to spend it better.”

In the short term, member states that have sent a lot of weapons to Kyiv for the fight against Russia need to increase their ammunition and transport stocks, the Spaniard said. It is also a matter of replacing Soviet-era legacy systems and reinforcing air and missile defense systems, according to a Commission statement. In light of that goal, the Commission, together with the European Defense Agency (EDA), is immediately setting up a task force. This is to identify ways to close short-term security gaps.

States “willing to procure together to address the most urgent and critical gaps” could benefit from a proposed €500 million financial instrument, the commission release said.

The war has once again drawn attention to the state of the armed forces in Europe. In March, the EU Commission was tasked, with the help of the EDA, with identifying the weaknesses and making appropriate proposals. These were presented Wednesday by Borrell and his colleagues Thierry Breton and Margrethe Vestager.

In the long term, the Commission and the EDA believe the EU needs to invest more in ships, tanks, drones, air refueling capabilities for aircraft and coastal defense. The conflict has also shown the importance of satellite infrastructure, among other things, for detecting critical threats.

12 different types of tanks in Europe

After years of shrinking spending – a kind of “stealth disarmament process,” Borrell said – EU countries have pledged to put significantly more money into their armies and navies in the wake of Russia’s invasion of Ukraine. In another press conference, Commission President Ursula von der Leyen said she would spend €200 billion more at the national level in the coming years. This additional money must be spent in a coordinated way.

It is no news that defense procurement in Europe is highly fragmented. For more than a decade, EU states have been trying to counter this fragmentation. Procuring equipment from domestic companies is considered inefficient and expensive. Partly for this reason, the European Defense Fund (EDF) was created, with €8 billion available over the period 2021 to 2027.

Borrell cited the example Wednesday of the United States, where there is only one type of tank. In Europe there are 12. “The logistical costs, the duplication and the lack of interoperability are evident in our air forces, in our Navy, everywhere.”

Hannah Neumann, Green Party MEP, welcomed the proposal, saying, “It has long been known that we can save many billions and better protect our citizens with joint procurement.”

Her CDU colleague in the European Parliament, Michael Gahler, said the Commission was taking the right, but also long overdue path: “We can no longer afford small-scale and isolated solutions.”

More competencies for commission controversial

For the Commission, the initiative could be a milestone for its own role in EU defense. Some EU states have traditionally closely guarded control over defense spending as a national competence. Fears that an “EU army” could undermine the sovereignty of member states have long existed. There is also criticism of a militarization of the European Union, which often emphasizes its identity as a peace project.

In recent weeks, France’s President Emmanuel Macron, perhaps the most vocal proponent of a more robust EU defense policy, and Italy’s head of government, Mario Draghi, have raised the issue of fragmentation again. The former called for new EU debt to finance a defense overhaul, while the latter called for a special conference to address the issue.

However, it is not a given that the Commission will lead the way on defense spending or that this is desirable. According to Daniel Gros of the Centre for European Policy Studies (CEPS), more money and coordination by the EU Commission is one possible approach. However, it is more important for a member state to also provide clear leadership for a joint defense project.

“We often have the problem that no country is really responsible and each country adds its own wishes, so in the end the costs then get out of hand,” Gros said at Table.Media’s Europe.Decisions. conference.

There is also little willingness in the German Defense Ministry to cede decision-making authority to the EU Commission. “Whether a purely European solution and coordination will make it easier, I don’t see immediately,” said Henning Trieschmann, head of unit for the Common Defense Policy at the conference. Ella Joyner

Federal government wants to strengthen offshore wind power with other North Sea states

The German government wants to significantly boost the expansion of offshore wind energy and work more closely together with Denmark, Belgium, and the Netherlands. The four North Sea states want to quadruple their offshore capacity by 2030 – to a joint minimum of 65 gigawatts, as the heads of government agreed on Wednesday in the city of Esbjerg on the Danish coast. By 2050, the capacity is to be expanded to 150 gigawatts, a tenfold increase compared to today.

“This is not just a declaration, but the toolbox for what we have to do and will do in the near future,” said German Chancellor Olaf Scholz (SPD), who traveled to Denmark with Vice Chancellor Robert Habeck (Greens) to sign the declaration by the four countries. “With this, we are strengthening the European expansion of renewable energies and thus further reducing dependence on gas imports,” Habeck said.

According to the German government’s so-called Easter Package, the German capacity of offshore wind farms is to increase from 7.8 gigawatts to at least 30 gigawatts by 2030. 80 percent of Germany’s electricity is to come from renewable sources by then.

Beyond the expansion targets, the four North Sea states want to strengthen their cooperation on the future production of green hydrogen, the generation of which produces no greenhouse gas CO2, from offshore wind energy and establish joint energy islands and hubs in the North Sea. dpa

Gabriel: reduce dependence on China

Former Vice Chancellor Sigmar Gabriel warns against also questioning economic relations with China in light of the conflict with Moscow. It is true that it has “failed” to transfer the model of securing peace through economic interdependence, which has been successful in Europe, to Russia, said the chairman of Atlantik-Brücke at Table.Media’s Europe.Decisions. conference. However, that does not mean the strategy of change through trade has failed per se.

However, the EU must try to reduce its dependence on China as well.“We will have to try to position ourselves more broadly,” Gabriel said. “However, that can’t be done overnight and especially not in a country that, like Germany, is more integrated into international value chains than any other country in the world.” The idea of becoming quasi-autonomous and trading only with democratic states will therefore not work.

Liana Fix, a Russia expert at the Körber Foundation, expects the Ukraine war to lead to a new bloc formation in the long term, with China as the leading power of the eastern power bloc. “At the moment, it looks like Russia will not be able to be its own pole in the long term, and that’s why we will see an East-West bloc formation in which Russia will be more or less part of the Chinese sphere of influence,” she said at the conference. Russia is likely to be permanently weakened economically and militarily by the war and sanctions and will not be able to be a pole of its own in the international order.

The European Union will also not be a pole of its own in the long run, Fix said. “Europe, despite all its efforts to achieve strategic autonomy, is too weak militarily in the long term to survive without the United States in the increasingly militarized geopolitics of this world.” Europe must therefore position itself as a strong partner within the Western and transatlantic alliance. tho

Ombudswoman: transfer of EU officials to free enterprise “problematic issue”

Rules on EU officials moving to the private sector are not strict enough, according to European Ombudsman Emily O’Reilly. There is a tendency to underestimate harmful effects when officials bring their knowledge and networks to the private sector, she said Wednesday at the launch of her annual report. “If this practice is not brought under control now, a culture may take root that could undermine public confidence in the integrity and expertise of the EU institutions,” according to O’Reilly.

The EU administration is at a critical juncture in terms of how it deals with these lateral moves, she said. The movement of regulators’ representatives into economic sectors they used to regulate themselves has become a “problematic issue” in Brussels, the Irish politician said. However, she said she had not found any maladministration.

Criticism of changes from Competition Directorate General

In the past, changes of high-ranking employees from the Directorate General for Competition in particular had caused criticism. The department is responsible, for example, for prosecuting violations of European competition law and imposing penalties. As reported by the news portal Politico, among others, several employees have in the past moved to law firms that also work for companies with which the EU Commission is involved in legal disputes.

The Ombudsman examined a sample of 100 decisions on-page changes from 2019 to 2021. Of those the commission had banned only two jobs. Among other things, she is now calling for jobs to be temporarily banned where risks cannot be offset by conditions or conditions cannot be credibly monitored and enforced. In addition, approval for a new job should be made conditional on EU officials receiving a commitment from their new employer to publish any conditions on their website. dpa

Microsoft revises licensing deal in EU antitrust dispute

In the struggle to settle long-standing antitrust disputes with the EU Commission over its cloud business, the US software giant is revising its licensing deals. It will be made easier for European cloud providers to compete, Microsoft President Brad Smith announced. He said the changes are aimed at removing key caveats. This is the first step, but not necessarily the last one the company will take.

The criticism centers on packaged solutions for Microsoft Office, which are now to be handled more flexibly. In recent months, some European cloud providers, including NextCloud from Germany and OVHcloud from France, had raised concerns about certain software licensing terms and practices from Microsoft. rtr

The ECB and Fiscal Policy Capture

By Willem H. Buiter

Since the second quarter of 2021, inflation in the United Kingdom, the United States, and the eurozone has far exceeded their central banks’ 2% target. This surge could well be explained by the unexpected severity and duration of the COVID-19 pandemic, the fallout from Russia’s war in Ukraine, and repeated errors of judgment by the Bank of England, the US Federal Reserve, and the European Central Bank.

But another possible explanation is monetary policy was subject to fiscal dominance or fiscal capture. In this interpretation, major central banks have engaged in aggressive low-interest-rate and asset-purchase policies to support their governments’ expansionary fiscal policies, even though they knew such policies were likely to run counter to their price-stability mandates and were not necessary to preserve financial stability. The “fiscal capture” interpretation is particularly convincing for the ECB, which must deal with several sovereigns that are all facing heavily in debt. Greece, Italy, Portugal, and Spain are all fiscally fragile.

Furthermore, France, Belgium, and Cyprus could also face sovereign-funding problems when the next cyclical downturn hits, or when risk-free interest rates normalize from the past decade’s extraordinarily low levels, or when sovereign risk is priced more realistically.

ECB still preoccupied with financing government deficits

In April 2022, headline inflation for the eurozone was 7.5%, and core inflation (excluding food and energy) was 3.5%. Yet the ECB remains intensely concerned with financing sovereign deficits. This was apparent in its March 24, 2022, announcement that it would continue to accept Greek government bonds as collateral until at least the end of 2024.

Greek sovereign debt does not meet the ECB’s investment-grade credit requirement, but it has been purchased and held by the Eurosystem (the ECB and member states’ central banks) under the Pandemic Emergency Purchase Program (PEPP) since March 2020.

In December 2021, the ECB Governing Council announced that it would discontinue net asset purchases under the PEPP at the end of March 2022. Yet it also decided that the maturing principal payments would be reinvested until at least the end of 2024, so “the future roll-off of the PEPP portfolio [could] be managed to avoid interference with the appropriate monetary stance.”

Moreover, in March 2022, the Governing Council made clear that it might continue to buy and accept as collateral the debt of other governments that could fall below investment grade. The ECB “reserves the right to deviate also from credit rating agencies’ ratings if warranted in the future, in line with its discretion under the monetary policy framework, thereby avoiding mechanistic reliance on these ratings.”

All told, the Eurosystem’s holdings of public-sector securities under the PEPP at the end of March 2022 amounted to more than €1.6 trillion ($1.7 trillion), or 13.4% of 2021 eurozone GDP, and cumulative net purchases of Greek sovereign debt under the PEPP were €38.5 billion (21.1% of Greece’s 2021 GDP). For Portugal, Italy, and Spain, the corresponding GDP shares of net PEPP purchases were 16.4%, 16%, and 15.7%, respectively.

New instrument to support member states

The Eurosystem’s Public Sector Purchase Program (PSPP) also made net purchases of investment-grade sovereign debt. From November 2019 until the end of March 2022, these totaled €503.6 billion, or 4.1% of eurozone GDP. In total, the Eurosystem bought more than 120% of net eurozone sovereign debt issuances in 2020 and 2021.

Now, the ECB is said to be working on a “new instrument” to support eurozone member states confronting higher borrowing costs stemming from the ECB’s own expected future policy-rate increases. The sovereign yield spreads on risky eurozone sovereign debt are rising again – with the Italy-Germany ten-year yield spread reaching 2% on May 10, 2022 – at a time when many vulnerable sovereigns are still planning additional large net debt issuances.

I expect that either the PSPP eligibility rules will be changed to allow the purchase of sub-investment grade debt, or that a new PEPP-like facility will be created for the purpose. Either way, the ECB is the only institution with the resources and the necessary reaction speed to engage in fiscal-rescue operations. The entity specifically created to address eurozone sovereign debt issues, the European Stability Mechanism, has neither the deep pockets nor the flexibility to respond promptly and decisively to a looming sovereign funding crisis.

Expected continuation of bond purchases

Indeed, as of April 2022, the total amount of loans disbursed by the ESM (and its predecessor) since 2010 was just €295 billion, or 2.4% of GDP. And Germany has just rejected a proposal by the ESM to create a new permanent aid fund worth €250 billion (about 2% of eurozone GDP).

Whenever the ECB starts raising its policy rates (which should be soon, though it will be too little, too late), I expect that it will continue its bond purchases. Most likely, these will be targeted at the high-risk sovereign debt issued by countries like Greece and Italy, though targeted purchases of corporate bonds and asset-backed securities could also be part of the “new purchase program.”

When such asset purchases occur under disorderly market conditions, they can be justified as “market maker of last resort” measures. That will likely be the case with Eurosystem purchases of corporate debt, provided that these are reversed as soon as orderly market conditions are restored. But by becoming a long-term holder of a growing stock of vulnerable sovereign debt, which is not justifiable on the grounds of systemic financial stability, the Eurosystem will be engaging in still more fiscal-support (and sometimes fiscal-rescue) operations.

Of course, no finance minister of a member country lays siege to the ECB’s headquarters, so one could argue No member-state finance minister is laying siege to the ECB’s headquarters, of course, so one could argue that this manifestation of fiscal capture is voluntary or internalized. But that does not mean it is not detrimental to the objective of price stability.

In cooperation with Project Syndicate, translated from English by Sandra Pontow.