MNI: EU Sovereignty Fund Set To Be Watered Down - Officials

European Commission President Ursula von der Leyen’s plans for a European Sovereignty Fund to pay for a green and digital transformation of the economy look likely to be a pale shadow of her original proposal in September by the time the Commission gets round to making its proposals later this month, EU officials told MNI.

Opposition from Nordic countries as well as The Netherlands at December’s EU summit have put paid to ideas that the fund could usher in further EU joint borrowing programmes in order to bolster the competitiveness of EU industry and make the Union a clean energy leader, they said.

Von der Leyen’s proposal was reinforced in response to EU-US frictions over the USD379bn U.S. Inflation Reduction Act, but, despite an appeal from Italy, all the leaders could agree on in December was a muted paragraph on enhancing the resilience of the EU economy, with no specific mention of a new fund, they noted.

“It wasn’t much of a discussion, but following Italy's call for fresh money, several leaders expressed their preference for use of existing or remaining funds,” an EU source said, pointing to unused money in the NextGenerationEU programme.

Italy’s intervention was aimed at defending those countries lacking the fiscal capacity to take advantage of streamlined state aid procedures touted by von der Leyen, but, even with the backing of France, it looks unlikely to lead to anything.

“It looks like another cover for the central fiscal capacity the EU has always wanted. I don't think it will fly,” said a source from a fiscally hawkish EU member state.

SWEDISH PRESIDENCY

Sweden’s assumption of the EU presidency in the first half of the year looks likely to be the final nail in the ESF’s coffin, officials believe, given its longstanding opposition to increased joint borrowing.

The softer trend in energy prices will also weaken support for Italian and French calls for further EU action as well as state-level help for businesses and households, officials said.

“With current trends of energy prices the issue of energy crisis support coordination will fade soon,” one source said.

The Commission gave a downbeat response to MNI on a request for an update, stressing von der Leyen’s December proposal as a four-point plan for competitiveness rather than its sovereignty fund or strategic autonomy aspect.

“According to the plan, we have to i) adjust our own rules to facilitate national public investments in the green transition; ii) re-assess the need of further European public investment in the green transition; iii) work with the United States to address some of the most concerning aspects of the Inflation Reduction Act; and iv) we have to further accelerate our transition to green energy,” it said in an emailed response.

The Commission told MNI that it would come forward with the “first elements” of a proposal in January, which will then be discussed by leaders at a Feb 9-10 summit.

But other officials were sceptical.

“I guess there will be something, but not with new money and not nearly of the size implied by the (original) name,” one of them commented.