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Free AccessMNI: Crisis Seen Weakening German Resolve Against Eurobonds
Germany continues to resist calls for more joint European borrowing to help support consumers and businesses during the energy crisis, European Union officials told MNI, though they added that Berlin’s resolve might weaken if its economy is hit by more severe gas shortages.
In the meantime, the European Union is likely to exhaust already-existing sources of fiscal funding including over EUR200 billion in unused NextGenerationEU loans, the officials said. Only an amendment of the legal text of NextGenEU would be required to redirect the unused loans from REPowerEU investments under the EU’s Energy Security plans towards subsidies to shield consumers and businesses from the impact of higher gas and electricity prices, they noted.
While Berlin was quick to deny a report following the EU’s Oct 7 Prague summit that German Chancellor Olaf Scholz had supported further EU issuance, and which prompted a sell-off of German government debt, officials said this did not mean that such a pivot could not occur in the near future.
“I feel [that] for change in German position on fiscal solidarity something more critical has to happen, like deeper crises or re-distribution of gas as a solidarity mechanism, when Germans would be really in need,” said one EU source.
GERMAN POLITICS
Pressure on Germany to accept more joint borrowing has been intensified by its recent EUR200 billion package of support for its own citizens, which some other, less well-off, member states would struggle to emulate. (See MNI BRIEF: Germany Tries To Calm Storm Over EUR200Bln Aid Plan)
Any move towards support for eurobonds has been made more difficult for Germany’s government by sagging public support for the coalition’s liberal member, the FDP, to which Finance Minister Christian Lindner belongs, the officials noted. The party suffered a further setback in regional polls at the weekend.
One eurozone finance ministry source said it was unlikely that Scholz would have made comments supportive of more joint borrowing, given the coalition’s track record of controlled communication on such sensitive topics at EU events.
“The Germans always stick to the joint coalition paper on the [EU’s Stability and Growth Pact fiscal rules] and debt, because that is what the coalition managed to agree on,” the official said.
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Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.