Energised Scholz names his price for EU debt deal

As Olaf Scholz approaches his first anniversary in office, he is experiencing first-hand a long-running rule of EU politics: as German chancellor, you can’t win.

Days after Russia’s invasion of Ukraine last February, Scholz announced a dual “watershed” strategy: Berlin would make taboo-breaking arms deliveries to Kyiv and, at home, activate a €100 billion special defence fund to reverse years of military underinvestment.

Initial applause at the promise of greater German defence leadership soon evaporated. Critics and neighbours took issue with Berlin for not doing as they would wish, taking issue in particular German hesitancy to deliver tanks and heavy arms to Ukraine.

A similar row surrounds a new €200 billion emergency energy fund in Germany, announced days before a new gas levy was due to come into effect. That unpopular plan would, from October 1st, have seen private German households pay even more for energy to subsidise big energy suppliers and industry.

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[ Europe Letter: EU frustration over Germany’s approach to energy crisis spills out into the open ]

With the clock ticking, the Scholz coalition scrapped that idea in favour of what the chancellor called a “double kaboom” plan: a gas cap and other measures, to extend a “large protective umbrella over the economy”.

More detail is expected by mid-October but the timing of the announcement, hours before EU energy ministers met to discuss a common plan, caught many off guard. It also triggered old fears that the EU’s economic giant is once again looking out for itself.

Fuelling those fears: lingering resentment among some over Germany’s euro crisis austerity demands and fury among others over Berlin’s bilateral energy deals with Russia.

Leading the critical charge, Hungary’s prime minister Viktor Orbán said “cannibalism in the EU” loomed if Germany was allowed outspend its neighbours in supporting its companies.

EU commissioners Paolo Gentiloni and Thierry Breton made similar arguments, in a more moderate tone, in an Irish Times opinion piece.

“It is more important than ever that we avoid fragmenting the internal market, setting up a race for subsidies and calling into question the principles of solidarity and unity that underpin our European project,” they wrote, calling for “mutualised tools at the European level”.

Scholz hit back at his critics on Tuesday, saying his government’s plan was “not singular” in the EU. Name-checking French EU commissioner Thierry Breton, he said other countries have “already been doing exactly what we have planned”.

At a joint press conference with Scholz, Dutch leader Mark Rutte insisted Germany “has the greatest right to take national measures”.

When France and Italy insisted Berlin’s €200 billion plan dwarfs their own national measures — €67 million and €68 million respectively — the blowback forced Scholz to walk back his “double kaboom” plan’s firepower.

He conceded the headline-grabbing €200 billion fund was creative accounting: spread out between now and 2024 and underwritten in part by unspent pandemic funding.

By then, however, the damage had been done and has super-charged a debate among EU leaders later this week in Brussels. On the agenda: demands to allow work begin on an emergency EU energy scheme, tackling inflation through a joint gas price cap funded, in turn, by common borrowing.

Germany, the Netherlands, Denmark and others are wary of such a continent-wide cap, flagging supply concerns as well as long-running concerns of turning the EU into a so-called “debt union” where joint borrowing is standard practice.

France and Italy, long-term proponents of joint borrowing, have a fall-back position: for Germany and others to back EU financial assistance for national energy purchases.

Their blueprint is the EU’s pandemic Sure €100 billion fund, borrowed jointly at lower cost. Scholz described the measures at the time as a “fundamental change” and step forward for the EU, “one we won’t go back on”.

Stung by blowback this week, however, Scholz is determined to push a quid pro quo in Brussels: the price of any joint debt deal to cushion energy price hikes is for EU members to shift away from unanimous to majority voting and open the door to common defence and fiscal reform. After years of standoff and standstill, any movement here would be a real EU kaboom moment.