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Germany’s fiscal power worrying EU neighbours

Germany’s fiscal power worrying EU neighbours

Ministers meeting in Luxembourg wonder if Berlin's energy-crisis borrowing plan will raise borrowing costs for others
The German flag waves in the wind in front of the Chancellor's Office waves in Berlin on Monday.
The German flag waves in the wind in front of the Chancellor's Office waves in Berlin on Monday.
Photo credit: Monika Skolimowska/dpa

Germany’s plans for a giant borrowing program to shelter firms and households from surging energy prices has got other European nations worried about reopening economic divisions the bloc had managed to bridge during the Covid crisis.

Launching the €200 billion ($196 billion) plan last week, German Chancellor Olaf Scholz said measures including a lid on gas prices would put a “large protective umbrella” over Europe’s biggest economy. But it would not shield other nations who will struggle to follow as they face higher borrowing costs and larger budget deficits after the pandemic.

Finance ministers convening in Luxembourg on Monday discussed how to act in a coordinated way and how to implement measures without worsening inflation. 

French Finance Minister Bruno Le Maire said countries needed to define a common economic strategy.

“If there is no consultation, no solidarity, no targeted support and no respect of fair competition conditions, we risk a fragmentation of the euro area,” he said. 

Greater divergence within Europe could further hobble an economy that is already at risk of falling into recession over the winter. Failing to work together would also contrast with the European Union’s response to Covid, when governments issued debt for a massive recovery fund to benefit countries most in need.

German Finance Minister Christian Lindner said his country’s package is proportionate to the size of its economy and that the government would use as little of the €200 billion as possible. 

“Germany isn’t putting forward an economic plan, Germany isn’t stimulating demand, we’re not providing economic aid, what we’re doing is we’re absorbing ruinous price spikes,” Lindner told reporters. “We’re showing Putin clearly that we’re using our economic strength to protect ourselves.”

Monday evening, Scholz is hosting French President Emmanuel Macron in Berlin for a working dinner. The two leaders are set to discuss solidarity measures between member states and reforming economic governance in Europe to better support growth and investment, an official at Macron’s office said.

©2022 Bloomberg L.P.