Winter is coming to Europe and with it, high energy prices, which could see many Europeans struggle to keep their homes warm. Yet, it seems Germany has its citizens covered. On September 29, Chancellor Olaf Scholz put forward a plan for a 200 billion euros ($197bn) energy package, which caused a stir across the European Union.
Although other EU countries have been using public subsidies to limit energy costs, none could afford the amount allocated by the German government. It was seen as a unilateral move at a time when Brussels was looking for a joint response to the energy crisis. From the west to the east and to the south, Berlin’s decision was heavily criticised.
French President Emmanuel Macron said Germany risks “isolation” after failing to adequately coordinate its response to the energy crisis with the rest of the EU. Former Italian Prime Minister Mario Draghi saw the package as a divisive move. Less diplomatic Hungarian Prime Minister Viktor Orban described it as “cannibalism”.
For Berlin, this financial stimulus seemed proportional to the size and vulnerability of the German economy. According to data from the European Commission, the projected German gross domestic product (GDP) growth in 2022 is 1.4 percent – rather modest compared with other EU countries. Italy is expected to grow by 2.9 percent, France by 2.4 percent, the Netherlands by 3 percent and Hungary by 5.2 percent.
Certainly, negative economic trends in Germany, which is the EU’s leading economy, will also have undesirable repercussions for the rest of the bloc. After all, 64 percent of German imports come from EU member states and the country has been one of the biggest contributors to the EU budget and to its post-COVID recovery plan.
Germany has been massively affected by the energy crisis. Before the full-scale Russian invasion of Ukraine in February, the country bought 55 percent of its gas from Russia. At the moment, it imports no gas from Moscow.
After an explosion took the Nord Stream 1 pipeline out of order and with Nord Stream 2 never coming online, Germany has had to start buying more gas from other, more expensive providers. Gas is still the main source of power, covering about 27 percent and thus is a major factor determining the final price of electricity. This is certainly having an unprecedented effect on the costs incurred by the industrial sector, which itself contributes 23.4 percent of the German GDP.
The announcement of the energy package was undoubtedly dictated not just by economic concerns but also by domestic politics.
With 62 percent of Germans being dissatisfied with Scholz’s performance, he needed to increase his political legitimacy by supporting German households and businesses at any cost, even at the cost of ignoring the consequences this may have at the EU level.
The fallout of the energy package announcement reflected not only the tension between Germany’s internal political dynamics and the responsibility it carries as the “de facto” EU leader, but also an ideological North-South divide on how to tackle economic crises. While the South is pushing for more economic integration and solidarity, the North is reluctant to pay for what it sees as southern economic mismanagement.
In an op-ed criticising the German energy package, EU Economy Commissioner Paolo Gentiloni and Competition Commissioner Thierry Breton stressed the importance of creating a European plan to tackle the energy crisis and avoid a race for state subsidies, which would fragment and compromise the single market. In their view, to help member states cope with rising energy prices, the EU should adopt a new SURE Plan, a financial instrument applied during the pandemic to support national interventions against unemployment.
However, northern countries, such as the Netherlands, see the idea of a European fund as anti-competitive and dangerous. In its view, this could open the door to an EU-wide mutualisation of the national debt. In other words, the Netherlands is not keen to share repayment obligations with countries such as Italy, whose national debt is close to 150 percent of its GDP.
What is clear to everyone, however, is that if internal tensions over the energy crisis escalate, this would play into the hands of Russia’s Vladimir Putin. Already, Hungary, which has been opposing EU sanctions against Moscow, has made special arrangements with Russian energy giant Gazprom to postpone gas payments for the next six months, if the price goes above a certain threshold.
This agreement would not only help Budapest pull through the winter, but it could also set a dangerous precedent. It could encourage other EU states to strike energy deals with Russia and thus, undermine European unity on the sanctions regime.
While the German package caused friction with other EU members, it may have a silver lining. It seems to have caused anxiety that has pushed EU states to get more serious about finding a common solution.
There seems to be a realisation that allowing divisions to grow and a joint economic response to be delayed could incur higher costs for everyone, both in terms of economic loss and geopolitical insecurity.
This became clear at the European Council working session on October 20 and 21. As EU Council President Charles Michel noted, EU member countries have shown “a strong and unanimous commitment to act together”.
Among the measures discussed were energy-saving strategies, joint purchasing of gas, a temporary price cap for gas in electricity generation and a temporary dynamic price corridor on natural gas transactions.
Moreover, EU states agreed on the need to foster energy solidarity measures and mobilise any relevant tools at national and EU levels to protect Europeans from the crisis. Although they did not clearly refer to the creation of an EU energy fund, they have left room to discuss it again.
The EU Commission needs to present concrete plans to implement the above proposals and another European Council will be probably held to move them forward.
Meanwhile, Elisa Ferreira, the EU commissioner for cohesion and reforms has also announced plans to allow member states to redirect up to 40 billion euros ($39bn) under the 2014-20 Cohesion Policy to help households, small and medium companies and even larger industries that struggle with high energy prices. This may not be a common fund, but it is a step in the right direction.
Now may also be good time for Germany to stop feeling uncomfortable with its leadership role in the EU and acknowledge it has enough political and economic power to lead the way in devising a common policy on the energy crisis. It can demonstrate its commitment to European unity by becoming a bridge between the North and the South and pushing for a more integrated approach that is politically strategic and economically convenient.
A lack of agreement within the EU would result in higher gas prices, which would not only make the expected recession worse, but would also give Putin even more energy revenue to finance his war in Ukraine. In other words, this would be a major European political and economic failure that even Germany cannot afford.
The views expressed in this article are the author’s own and do not necessarily reflect Al Jazeera’s editorial stance.