EU solutions to the crisis: certain damages, uncertain benefits
From sanctions for Russia to budget policy lines for 2023. What was said at the Eurogroup and Ecofin. Giuseppe Liturri's analysis
Monday and Tuesday in Brussels were two intense days for the ministers of the economy of the eurozone countries involved in the Eurogroup and then joined by other colleagues for the Ecofin Council.
The agenda is very busy: sanctions against Russia and their impact on the EU economy; the guidelines for the budgetary policy of 2023; the completion of the Banking Union; a new hypothesis of a temporary framework for state aid linked to the current energy crisis; the launch of a tax based on the import of products with a high CO2 footprint and the continuation of work on the minimum tax on the income of large companies.
The summary is that there is uncertainty about everything, but there is only one certainty, that of sanctions against Russia, whatever the cost. The extent of the latter has rather clear and impressive outlines, but the thickest fog reigns on how to mitigate their impact and everyone – from the Eurogroup, to the Commission, to the Council – keeps their hands free to adapt flexibly to the course of events.
The Commission postponed to May – when the country recommendations will be published – any detailed indication on the economic policy lines for 2023. However, it did not miss the opportunity to reiterate that the fiscal stance will shift from expansionary to neutral and that States with high debt (any reference to Italy is purely intentional) will immediately have to set up a reduction path. To keep us alive on the path of growth, investments and reforms of the Next Generation (NGEU) should be enough, while current public spending will have to be contained and subject to spending review. In short, with the hand of the PNRR we will build hospitals and schools and, with the hand of the Stability Pact, we will have to cut the cost of doctors and teachers.
There is no news on the hoped-for suspension of the Stability Pact also for 2023, even if in the following days, there was no lack of openings to this effect. President Paschal Donohoe and Commissioner Paolo Gentiloni, in the evening press conference, did not feel embarrassed in confirming the seriousness of the damage caused to the economy by the sanctions and the current energy crisis, in the face of which the toolbox is desolately empty . Indeed, the box contains only two old tools that no one has used so far.
The director of the MES, Klaus Regling did not hesitate to define " a positive experience" (?) The special credit line designed for the pandemic and declared that he believed it possible to repeat that experience to face the energy crisis, even if it is too early to talk about it and ministers did not discuss it. The other old tool available was dusted off by Vice President Valdis Dombrovskis who, at the end of the Ecofin Council, after having listed all the damage inflicted on Russia with the fourth round of sanctions launched during the Ecofin on Tuesday, had to recognize the heavy consequences for the EU economy and has found nothing better than to invite the states to draw on the 200 billion still available loans from the NGEU. An involuntary admission of the bankruptcy of the NGEU which, in the face of 385 billion of available loans, saw only Italy (for the entire available amount of 122 billion), Greece, Portugal and Romania. We spread a pitiful veil on how the very rigid cage, created to draw on those funds, with a calendar for the next 5 years of objectives and goals defined in the utmost detail, can be modified to make them usable to face the supply shock deriving from the war events. in Ukraine, which only started a fire already underway.
The completion of the Banking Union, on which the Eurogroup has been struggling for about a year with the Gordian knot of assigning a level of risk to public securities held by banks, was the opportunity taken by Regling to reiterate that the first step to be taken is that of ratifying the ESM reform. Also in this case, in Rome whoever has ears to hear should understand and provide.
In the meantime, the Council has finally come to the head of the project for a new tax (CBAM), aimed at hitting at the border products imported from non-EU countries that are less stringent in reducing greenhouse gas emissions. The products affected will be concrete, aluminum, fertilizers, iron and steel. These revenues, together with those deriving from the revision of CO2 emissions rights and from the taxation of profits of large companies (whose proposal is not yet ready), are decisive for repaying the debts that the EU has contracted to finance the NGEU. But what was conceived two years ago in full deflation, today is equivalent to throwing more petrol on a burning haystack. This tax can only be discharged along the entire supply chain of the sectors involved with foreseeable inflationary effects. In Brussels they don't seem to care.
And this is especially confirmed if we look at the few pennies that the Commission is preparing to authorize as a ceiling for state aid for companies affected by the surge in energy costs. On 10 March, the Commission made available to Member States for consultation a draft for a new temporary framework for aid deemed to be non-competitive. On the 16th the deadline for observations expired and the usual rift between the Mediterranean and the Nordic fronts emerged from the international media. The first is inclined to allow generous intervention by the States in favor of companies damaged by crazy energy costs, the second worried about possible aid to zombie companies or excessive distortions of competition.
In addition to the revival of the usual loans with a reduced cost guarantee or with a subsidized rate, the temporary framework (16-page document that we have been able to analyze) provides that the subsidies can be disbursed only beyond a certain threshold of increase in costs, set very high based on the November 2021-January 2022 quarter, when the cost of energy was already very high. Suffice it to say that companies (fortunately not all) whose energy price is subject to the variability of the PUN (Single National Price), from 2019 to 2022 have seen the cost of the energy component multiply by 4/5 times. From our calculations, based on data up to 18/3, compatible aid should range between 6% and 8% of the cost of energy. Well above the 20% energy-intensive corporate tax credit set by the Draghi government for the first two semesters. This discrepancy – all to be confirmed based on the final text that will presumably be published by the Commission by the end of the month – could lead to a clash with Brussels. Frankly, we refuse to believe that there is the absurdity of asking companies to repay any aid that exceeds the EU thresholds.
The famous phrase "if they have no more bread, let them eat brioche" could change for the worse. We risk not even having the croissants.
(Updated and expanded version of an article published in the newspaper La Verità)
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/le-soluzioni-dellue-per-la-crisi-danni-certi-benefici-incerti/ on Sat, 19 Mar 2022 08:53:06 +0000.