Wednesday, August 5, 2020

Nervousness before the big EU summit

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Spain’s Prime Minister Pedro Sanchez presented a working paper in which he approached the federal government before the meeting. Like the EU Commission, he also envisions a huge reconstruction fund for the European economy amounting to 1.5 trillion euros.

But at least Sanchez wants to get around the biggest issue: that of common European public debt. Instead, Sanchez’s funding of the fund is based on the Brussels proposal, which is not met with frontal rejection in the federal government.

The idea of ​​the EU Commission is based on guarantees from the member states. This would allow the Commission to raise more debt itself. The advantage: The member states would no longer have to transfer money to the EU budget, but the EU Commission could still finance the reconstruction fund and increase its clout through a “lever”, ie the multiple use of a euro. The financial maneuver is to be secured via the EU budget.

Partial liability as a basis for negotiation

In contrast to corona bonds, i.e. common European debt securities, the Federal Government is more open to this proposal. From the federal government’s point of view, corona bonds are banned simply because they would be highly problematic under constitutional law.

That would be different with the EU proposal. In contrast to corona bonds, the federal government is not fully liable for European bonds that are secured by European institutions, but only in part.

The Federal Government emphasizes how important this is to it in a response to a request from the Greens for European common debts in previous bailout programs.

The issuance of bonds for the EFSM, the predecessor of today’s ESM rescue fund, “is strictly limited in fact and is based on legal acts with a corresponding contractual basis,” writes Finance Secretary of State Bettina Hagedorn (SPD) in the answer.

This would not be the case with corona bonds. The opposition is still putting pressure. “A large reconstruction fund for Europe is now necessary,” says Green budget politician Sven-Christian Kindler. “The Federal Government can no longer refuse to fund the fight against the corona crisis on the basis of solidarity.”

Scholz calls billions

Identical demands come from southern Europe. The Federal Government knows that it cannot oppose everything; the situation in Europe is too tense for that. However, she sees the risk of being legally vulnerable if the reconstruction fund is too large. Ministry of Finance officials and budget politicians also want to keep budgetary risks as low as possible.

Two letters from the Federal Ministry of Finance to the Budget Committee of the Bundestag, which are available to the Handelsblatt, show the burdens that the corona crisis is already having on the federal budget. With them, Federal Finance Minister Olaf Scholz (SPD) is calling new huge billions of dollars.

One day, Scholz wants to have 4.7 billion euros on hand to increase the guarantee volume of the European Investment Bank. He needs another ten billion euros to provide guarantees for KfW’s new fast loan. “The sums show that the risks to the federal budget are becoming more concrete,” says FDP housekeeper Otto Fricke. Another budget politician, who does not want to be named, says: “The government is clearly expecting guarantees to be drawn to this extent – and the money is gone with it.”

More: 16 countries, 16 ways out of the crisis – why Germany’s approach to the corona crisis seems arbitrary.

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