EU explores additional common funds to support energy transition

EU explores additional common funds to support energy transition

(Bloomberg) — The European Union will explore ways to raise funding as a bloc to accelerate its plans to cut off Russian gas despite persistent reservations from some of its member states.

European Commission President Ursula von der Leyen told leaders on Wednesday in a letter that the EU’s executive arm would look at “other sources of funding to boost REPowerEU’s firepower,” the bloc’s initiative to reduce its energy dependence on Moscow.

Several European countries, including Germany and the Netherlands, have been deeply skeptical about the need to raise new EU funds, but her call to consider EU-wide financing reflects growing concerns about the sheer amount of spending that will be needed to achieve the bloc. The next few winters without Russian gas.

It is not yet clear whether the bloc will consider issuing a new joint debt or look for other ways to raise funds.

Von der Leyen’s message comes a day before European Union leaders meet in Prague to discuss the energy crisis and days after Germany announced a 200 billion euro ($197 billion) package to protect its companies and families from the economic impact of rising gas prices.

Some member states have criticized Germany for taking such a strong unilateral response because they worry it could undermine the EU’s single internal market.

Von der Leyen told leaders that “we need to maintain a level playing field, without distorting the single market and to work together in a spirit of enhanced solidarity among member states and with our neighbours.”

People familiar with the matter said that EU commissioners discussed behind closed doors on Wednesday whether the EU needs to find additional mutual funds to avoid the risks of market fragmentation.

The Commission is considering going into financial markets to pay for this new push towards energy independence as it did during the Covid-19 crisis, although new joint borrowing is just one of the ideas being considered, an EU official warned.

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Commissioners Paolo Gentiloni and Terry Breton suggested earlier this week that the EU could follow the model of SURE, the loan-based mechanism where the bloc taps financial markets to help member states pay unemployment benefits during the pandemic.

Leaders are expected to discuss the economic fallout from the energy crisis this week and at the regular EU summit later this month. An EU official said the EU’s executive arm may elaborate on the details of a proposed mechanism this month depending on the outcome of leaders’ discussions.

But some EU officials and diplomats are not convinced that the bloc needs new funding as it still has a large amount of unspent money, including in the EU’s regular budget as well as pandemic-era money.

© Bloomberg LP 2022

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