Why limited EU loans for unemployed could be replicated

Good morning and welcome to Europe Express.

Hope for more EU funding springs eternal — especially when looking at the energy crisis, a looming recession and rapidly emptying state coffers. While another ‘Hamiltonian moment’-type of joint borrowing like the €800bn NextGenerationEU is out of the question, some fiscal hawks are less hostile to the idea of replicating a smaller, pandemic-era loans programme. We’ll explore why and when such a solution could take shape.

The European Commission last night finally circulated its long-awaited guidance on gas caps, which immediately disappointed diplomats whose governments had already made their own proposals. The commission said the bloc should prepare for caps on pipeline gas and introduce a separate benchmark for LNG. It also proposed a price limit on transactions relating to Russian gas — all ahead of an emergency energy council tomorrow where consensus will be difficult to attain.

And with economy ministers in town today, we’ll look at a fresh Franco-German push to diminish Europe’s dependence on raw materials from China. Strategic autonomy is back!

Raise your hand for Sure 2.0

The EU’s response to its burgeoning energy crisis has been a rather haphazard affair, in which member states have tended to prioritise their national security of supply over an integrated approach, writes Sam Fleming in Brussels.

The mixed reviews capitals have given to this week’s proposed EU package of windfall levies only confirmed this impression, for example, as have the continued divide over the merits of a price cap on natural gas imports and the patchy co-ordination on new LNG contracts.

It is all a marked contrast to the response to the pandemic, where after a hesitant start, the EU managed to pull together behind a multibillion-euro joint vaccine procurement programme and an unprecedented €800bn joint borrowing effort.

If, as seems likely, the energy shock will drive Europe into a recession, calls for more solidarity will only intensify. One area to watch is the age-old question of EU common funding to fight the crisis.

The commission’s REPowerEU plan proposed a relatively modest amount of fresh money for energy security totalling €20bn — and it is still unclear where exactly this cash will come from.

Some member states have separately floated the idea of funnelling the mooted windfall levies on low-carbon power generation into a common pot — though this has failed to gain any traction.

But the strain on public finances from measures to shelter consumers and manufacturers from the energy crisis will only intensify, with Bruegel, a think-tank, putting the bill across Europe as a whole at nearly half a trillion euros to date.

There was a brief flurry of debate early this year over the idea of big common EU funding schemes to respond to the energy shock, but this all proved highly premature and was rapidly shelved.

And over half a year later officials still insist there is plenty of EU money around without looking for excuses to conjure up new schemes. After all, just over €100bn of funding has been parcelled out under NextGenerationEU, meaning a huge amount of cash has yet to flow from Brussels to member states. The commission has repeatedly pointed to over €200bn of untapped loans available under the programme.

Big member states led by Germany have meanwhile been emphatic that NextGenerationEU was a one-off programme, quashing any talk of a second iteration.

But that doesn’t mean the topic of fresh joint EU funding efforts is entirely foreclosed.

The most likely area to look as a potential model, diplomats say, is the union’s €100bn pandemic-related unemployment reinsurance scheme — dubbed Sure. The original version was hatched in 2020 to help countries hit by rocketing jobless claims.

Some see a Sure 2.0 as a possible way of helping member states that are particularly hard-hit by the energy crisis, for example, by again helping support short-time working schemes.

Germany’s Chancellor Olaf Scholz spoke noticeably warmly of the mechanism back in August, saying it was a model for “pragmatic solutions” now and in the future.

Diplomats stress that talk of an energy-related Sure scheme is at a very nascent stage and would only become serious if other options are first exhausted.

But if the energy crisis triggers a steep enough economic nosedive, the idea of a second coming for Sure could start to gain traction.

Chart du jour: Sabotage benefits

Russia has denied involvement in the explosions that caused leaks in two Nord Stream pipelines. But because the pipelines are disabled, Gazprom can trigger force majeure clauses in its supply contracts, which protect the company from legal challenges over its non-delivery of gas.

Made in Europe

Germany has climbed off the fence and teamed up with France in its push for greater EU autonomy on minerals needed for microchips, batteries or solar panels, write Alice Hancock and Andy Bounds in Brussels.

In a joint paper seen by Europe Express, Paris and Berlin identify 30 critical minerals and draw up ways to reduce the EU’s dependency on third countries (mostly China) for those materials.

They suggest more partnerships such as the ones with Ukraine and Canada to secure supplies and a common European fund to back “raw materials projects”. (The word “mining” is strategically left out to avoid irking environmentalists.)

The paper builds on the EU Chips Act tabled earlier this year and which seeks to oblige semiconductor manufacturers to prioritise domestic EU customers if Brussels decided there was a shortage.

The paper was timed ahead of today’s meeting of economy ministers who are due to discuss another French-driven initiative (by its commissioner, Thierry Breton) intended to keep borders open and supply chains running smoothly in the event of another crisis like the pandemic.

The so-called single market emergency instrument includes interventionist measures along the lines of those in the Franco-German paper that have unsettled business lobbies. The EU could force companies to stockpile supplies and break delivery contracts to divert production to other customers or even make different products such as ventilators or face masks.

The ideas in the Franco-German paper are likely to meet resistance from some capitals. “There is concern among a significant group of member states that far-reaching interventions in the internal market are being pushed through,” said one diplomat. But they will find it hard to slow the Franco-German motor.

Also, European nations spooked by their experience with depending on Russia for fossil fuel imports are expected to be open to improving domestic supply chains. “When it comes to dependencies on China, the numbers are way more serious than they were for Russian gas,” another EU diplomat said.

What to watch today

1. Economy ministers gather in Brussels for a competitiveness council on the single market emergency instrument

2. German Chancellor Olaf Scholz receives French Prime Minister Élisabeth Borne in Berlin

Notable, Quotable

We are losing, in fact properly losing

• Counteroffensive, visualised: This FT immersive visual story shows Ukraine’s stunning counteroffensive, town by town, a 90km journey that changed the war and pushed back Russian troops.

• Whatever it takes: The Bank of England unleashed a £65bn bond-buying programme yesterday aimed at stemming a spiralling crisis in government debt markets following chancellor Kwasi Kwarteng’s tax cuts and borrowing plan last week.