April 14. 2024. 5:52

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EU’s Breton: Joint debt for green transition no longer a priority

Joint borrowing is currently not an option to help member states finance the green transition, Internal Market Commissioner Thierry Breton said on Monday (13 March), marking a shift from his previous calls for ‘mutualised tools’ at the European level.

Breton ruled out the option of contracting another round of EU joint debt to finance the development of green projects under the soon-to-be-presented Net Zero Industry Act – which looks at increasing support for low-carbon technologies – in answer to a question from EURACTIV at a press conference in Paris on Monday (13 March).

“We are in a context of urgency, and it will be easier to find a political agreement as part of the revision of the MFF [Multiannual Financial Framework] than through joint borrowing,” he said.

The MFF is the EU’s long-term budget. The one the EU is currently operating under was approved for the 2021-2027 period and accompanied by an €800-billion joint debt instrument, known as NextGenerationEU (NGEU), dedicated to post-COVID economic recovery.

The MFF is due to be revised in July, to reroute budget lines in light of the war in Ukraine, inflationary pressures and the introduction of the Green Deal Industrial Plan to curb the effects of the US Inflation Reduction Act (IRA) on EU industry.

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Financing the green transition for all

The Green Deal Industrial Plan, approved by all member states at an extraordinary European Council on 10 February, sets the path to looser state aid rules and simplified application procedures.

To counteract the distortionary effects of ramping up national subsidies, the EU Commission has talked of a European Sovereignty Fund to also help member states with limited fiscal firepower to finance critical green transition projects.

How this fund will be financed remained unclear, and joint borrowing appeared to be an option on the table – but Breton said it no longer was.

“We need financing tools that are accessible to all,” Breton said, highlighting the work he had done with EU leaders to “understand each member state’s financial capacities” and ways to go about supporting clean tech projects equally across the bloc.

“It shouldn’t just be for Germany or the Netherlands,” he said, hinting explicitly at Berlin’s much-decried solo €200-billion fund to tackle the energy crisis, introduced in October.

But “until all NGEU funds are mobilised, we better wait [before a next round of debt], it’s politically much more reasonable this way”, Breton said.

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Breton’s comments hint at a U-turn compared to previous stances he’d taken on the matter. Back in October 2022, at the peak of the energy crisis, he and Economy Commissioner Paolo Gentiloni co-signed an op-ed which called for “mutualised tools at the European level”.

“Only a European budgetary response will allow us […] to respond effectively to this crisis and to calm volatile financial markets,” the op-ed read.

Both signatories encouraged member states to “take inspiration from the ‘SURE’ mechanism”, another debt-financed €100-billion instrument to mitigate post-COVID unemployment risks across the EU, to battle “the energy crisis and rising social anger”.

Breton, a French national, has always stuck close to France’s pro-debt stance, though things have been starting to change lately.

Asked if a fresh round of joint borrowing was on the table in an interview with EURACTIV in late February, French Industry minister Roland Lescure remained evasive: “I don’t want to get stuck on one specific financial tool”.

A French source close to Green Deal Industrial negotiations also confirmed joint debt was no longer a priority, instead opting for existing-though-unused NGEU cash, at least in the short-run.

Germany is staunchly opposed to any new round of debt, as are Finland and Austria, among others. Relying on the existing joint debt from 2020 would have to be enough, Austrian Chancellor Karl Nehammer said in February.

Austria, Finland united in opposing new EU joint debt

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EU countries agreed to a “once in a lifetime” €750 billion …

State aid will not level single market playing field

So far, the nature of the fresh cash is thus most likely to come from the rerouting of existing budgets following the revision of the MFF, according to the Commissioner.

But he warned: “levelling the playing field” to support the green transition in the EU “will not happen through state aid without any strict rules and frameworks”.

A rogue loosening of state aid rules would create profit-grabbing behaviours within the single market, he claimed – a view largely echoed by Commission’s competition chief Margrethe Vestager, who warned on Thursday (9 March) that the state aid relaxation for green tech could only work if it is “proportionate, targeted and temporary”.

National subsidies, or state aid, are usually tightly regulated in the EU to preserve a level playing field in the single market. However, since the COVID-19 pandemic started in 2020, temporary crisis frameworks have been implemented to make it easier for member states to support their companies. More exceptions have been added since the start of the Russian invasion of Ukraine.

Some member states, including France, support state aid expansion but other countries say it only helps nations with deep pockets and risks fragmenting the single market.

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The EU’s Temporary Crisis and Transition Framework (TCTF), which allows member states to subsidise sustainable technologies, is welcomed by advocates for green industrial policy – but some NGOs fear it will be counterproductive for the environment and SMEs.