MNI: EU Green Deal Seen Tapping Existing Funds, Leveraged

A proposed European Sovereignty Fund for “green deal” investment in response to U.S. Inflation Reduction Act subsidies is most likely to be paid for by existing European Union facilities rather than fresh borrowing, and could be leveraged in a similar way to the EU’s Chips Act, officials told MNI.

While European Commission President Ursula von der Leyen and EU President Charles Michel seemed to open the possibility of new joint borrowing in recent speeches, this idea was given short shrift by countries such as Germany at this week’s ECOFIN meeting of finance ministers. The EU’s current Swedish presidency is also against new joint funding as the bloc seeks to respond to USD379 billion U.S. plans to drive green investment. (See MNI: EU Sovereignty Fund Set To Be Watered Down - Officials)

Von der Leyen and Michel had hoped to sell their plan to smaller states and those with tighter fiscal room, such as Italy and Spain, but officials said tapping existing funds such as repurposed loans from the post-Covid Recovery and Resilience Facility was far more likely. While this may only provide a few billion euros, other existing moneys could be found elsewhere, to be leveraged in a similar way to the Chips Act, which aims to use EUR11 billion in official cash to mobilise over EUR43 billion in public and private investments, officials said.

EASIEST OPTION

The Commission president had put more flesh on the bones of her original proposal to boost Europe’s clean energy sector in a keynote speech in Davos Tuesday, setting out a four-point “Green Deal Industrial Strategy”.

Central to that strategy is streamlining and simplifying state aid for key strategic sectors, like clean energy. The appeal of this is obvious to bigger economies, such as Germany and France, which still have fiscal space and want to support their industrial bases through difficult times.

German MEP and ECON Committee Member Markus Ferber said taking existing unspent funds is often the more attractive way out when states cannot agree on funding issues.

“After all, by repurposing old funds, Mrs von der Leyen would still be able to claim a new and impressive headline number that looks good on paper - as long as you do not look too closely,” he said.