Never since the start of the pandemic in 2020 has Europe had such an opportunity to demonstrate its cohesion. Vladimir Putin’s energy cut – intended to punish opposition to his invasion of Ukraine – is a classic external shock that will affect countries differently depending on their dependence on gas supplies from Russia, Germany and the EU. Italy being the hardest hit. To mitigate the impact of rising prices, help the most vulnerable get through the winter and accelerate the transition to other energy sources, public expenditure in the order of several hundred billion euros is justified. .
In a fully integrated union, the fiscal response would be largely automatic. Aid would be immediately channeled to the hardest hit areas, first through direct grants, then through income tax breaks and credits for businesses and households. This is the type of burden sharing required for governments to share a currency. Without it, some could end up with debts that would be too much to bear.
This is not the case in the EU. Just like in other crises, its 27 member states have struggled to mount an ad hoc response to the gas shortage, divided by everything from domestic politics to the physical structure of the energy grid. Some countries, including France, Italy and Spain, pushed for a price cap that they hoped would reduce the cost of their own liquefied natural gas imports. Germany, for its part, unilaterally announced a 200 billion euro ($195 billion) price mitigation package. Markets reacted to the dissonance by raising borrowing costs for Italy, where the government’s already heavy debt burden would make additional spending particularly heavy.
Fortunately, European leaders could be moving towards some form of cooperation. According to Bloomberg News, Germany may be willing to provide EU loans to struggling governments, financed by jointly issued debt. This could reduce borrowing costs somewhat for countries like Italy. But it would fall short of the pandemic stimulus fund, which has been hailed as a breakthrough for including some grants with loans – and well below the kind of tax burden sharing needed to ensure long-term sustainability. of the monetary union.
Such half-measures leave Europe unprepared for new challenges and gradually sliding towards a new debt crisis. There is no doubt that efforts to expand risk sharing are facing strong political headwinds in every country. But at the very least, the EU should be able to establish a permanent fund to provide both emergency loans and grants – with clear procedures on how to use it, so that members of the EU do not need to negotiate a new program each time a crisis arises.
Ultimately, what is needed is a central fiscal authority, with its own source of revenue and the power to spend when needed to mitigate asymmetric shocks. If neither the pandemic nor a Hybrid War with Russia can cause the EU to consider such a possibility, it is hard to imagine what will. The longer Europe waits, the greater the likelihood that its unification experiment will fail.
More from Bloomberg Opinion:
• Putin helps forge European unity on energy aid: Lionel Laurent
• Nord Stream shows that Deep Sea is a battlefield: James Stavridis
• Putin never cared about red lines: Leonid Bershidsky
The editors are members of the Bloomberg Opinion Editorial Board.
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