BERLIN/PARIS/ROME (Oct 4): Two top European Union officials called for the use of common spending to tackle the energy crisis as member states ratcheted up criticism of German plans for a giant borrowing programme to cap power prices.

EU internal market chief Thierry Breton and Paolo Gentiloni, the bloc’s economy czar, said the current situation requires solidarity among member states, including the issuance of joint-guaranteed debt similar to what was done during the Covid pandemic.

“The energy crisis and rising social anger in a context of record inflation and astronomical gas and electricity prices has brought us to another crossroads,” the two officials said in op-eds published in European newspapers including Germany’s Frankfurter Allgemeine Zeitung.

“We must think about mutualised tools at the European level,” they said. “Only a European budgetary response will allow us, by supporting the action of the ECB, to respond effectively to this crisis and to calm volatile financial markets.”

The push for joint debt issuance faces strong opposition from more hawkish EU members, including Germany. While the bloc launched a €1.8 trillion (US$1.8 trillion) emergency package backed by joint debt to finance member states’ efforts to deal with the pandemic, such a move was unprecedented.

German fiscal force

“We are open to discussing other instruments, but this crisis is very different from the corona pandemic,” German Finance Minister Christian Lindner told reporters Tuesday before a meeting with his EU counterparts in Luxembourg. “We aren’t dealing with a demand shock where public funds have to be used to stabilise demand or stimulate the economy, we are dealing with a supply-side shock, and we have to react to it by expanding the supply and by showing a joint front on the international markets.”

The search for a common European solution to the crisis comes as concern mounts over Germany’s €200 billion plan, announced last week, to keep power prices in check. German Chancellor Olaf Scholz said the measures would put a “large protective umbrella” over Europe’s biggest economy. But it wouldn’t shield other nations struggling with higher power prices.

French Finance Minister Bruno Le Maire suggested the “possibility at the national level to raise debt but with the support and the guarantee of all European member states, which means that you could borrow money at the lowest price”.

Calling for a decision within days, not weeks, Le Maire told Bloomberg Television that inflation was hurting economies, households, companies and industry “right now”. The minister had previously criticised a lack of coordination among euro-area countries.

His Finnish counterpart, Annika Saarikko, said there should be more awareness of the impact of one country’s decisions on others.

Greater divergence within Europe could further hobble an economy that is already at risk of falling into recession over the winter. Failing to work together would also contrast with the European Union’s response to Covid, when governments issued debt for a massive recovery fund to benefit countries most in need.

While Germany’s plan “responds to a need we recognise and have highlighted” to support the economy, it also raises questions about how EU countries without the “same fiscal space” help their businesses and households, Breton wrote on Twitter. “It is more important than ever that we avoid fragmenting the internal market.”