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EU tells capitals to cut spending pace during energy crisis

by SuperiorInvest

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Russia yesterday the gas flow was threatened to Western Europe via Ukraine, adding to the gloomy outlook for winter. In this context, the European Commission presented a sober assessment of the bloc’s economies and their fiscal plans for the coming year, which we will expand on below.

The commission also finally published its long-awaited cap on gas prices, which was immediately released as a “joke” given that it wouldn’t have taken off when gas prices peaked in August.

And in slightly more positive East Wing news, I bring you the latest on Romania’s long-standing anti-corruption efforts, which finally received recognition yesterday.

Targeted spending

Brussels regularly urges EU member states to make sure they focus their efforts carefully on cushioning economies from an energy shock, rather than splashing cash in a haphazard manner. The European Commission’s latest annual check on the state of public finances has suggested that too many are ignoring this advice, it says Sam Fleming in Brussels.

As Executive Vice President Valdis Dombrovskis noted less than 30 percent of support measures they were “well targeted” in the EU this year.

That means most efforts to mitigate rising energy prices aren’t directed at those who really need the help, he said.

About two-thirds of policies aimed at cushioning the impact of the energy crisis on households and businesses are aimed at price caps, which can reduce incentives to reduce energy use and increase energy efficiency, the commission added.

EU public finances are, broadly speaking, in a much better place than at the height of the COVID-19 crisis, when the overall deficit in the eurozone reached 7 percent of gross domestic product.

But that doesn’t mean it’s a pretty picture. While Member States’ draft budgetary plans point to a euro area budget deficit of 3.2 percent in 2023, if the Commission’s recent pessimistic growth forecast for next year is confirmed, the deficit will be substantially higher at 3.7 percent (higher than the 2022 result ).

The outlook could be worse depending on how member states deal with the energy crisis. The net budgetary cost of energy measures for 2023 is currently estimated at 0.9 percent of GDP in the euro area, the commission says.

But the bill could be much higher depending on how policies play out in the coming months. If the capital’s current energy measures are maintained throughout 2023, their net costs could rise to around 2 percent of GDP, the commission calculates.

The punishing fiscal costs of the energy crisis highlight why so many member states, including Italy, Greece and France, they pushed hard for the commission to take measures to introduce a regulated ceiling on the price of gas.

The planned gas price cap the commission unveiled yesterday fell well short of what they were looking for. Experts have warned that the levels at which the commission wants to set the cap would mean it is unlikely to ever happen.

As a result, the pressure on EU capitals to devote more public money to protecting businesses and households from high prices may well continue unabated.

Chart du jour: Betting on solar energy

Renewable energy sources increase the security of energy supply, writes Martin Wolf. The wind and the sun may fluctuate during the day and the seasons, but Vladimir Putin cannot cut them off. For China, Europe and India, the security case for renewables is overwhelming.

Special RIP monitoring

It may not look like much, but the EU Commission yesterday’s statement That Romania has finally met the rule of law requirements, almost 16 years after joining the bloc, is somewhat of a victory.

I remember when the Cooperation and Verification Mechanism (CVM) was first createdin January 2007, in tacit recognition of the fact that neither Romania nor Bulgaria, which joined the bloc on that date, had done enough to fight corruption (and organized crime in Bulgaria’s case) and establish fully independent judicial systems.

The monitoring, first biannually, then annually, was always quite detailed, listing what had improved, which specialized prosecutor’s offices had built solid and “irreversible records” of cases, and where “lack of progress” was still a problem. . Its conclusions have always been predictable, with no country ever making enough progress to overturn the CVM.

The effectiveness of CVM in instigating change is debatable. Critics will point to the fact that it has never been replicated (Croatia joined in 2013 without such monitoring) and that the order of accession talks has been changed so that countries never leave rule of law and justice reforms to the last minute, as they have been until now. this was the case in Romania and Bulgaria.

Then came former Commission President Jean-Claude Juncker, who declared that by the end of his term, in 2019, the CVM should be abolished. Indeed, the Commission concluded that year that Bulgaria ticked all the boxesbut not Romania.

EU capitals have not signed off on the decision to cancel the CVM for Bulgaria (in fact, most major countries including Germany, France and Spain have requested a follow-up report on Sofia, without success) – and it remains to be seen whether all will support the decision to stop reporting on Romania.

In particular, the Dutch government (and parliament) has linked its agreement to allow Romania to enter the borderless Schengen area with a positive report on cooperation and verification (in addition to the country’s full compliance with border security rules). However, the Netherlands is not the only country that opposes the extension of Schengen, Sweden and recently Austria also have doubts.

As interior ministers meet on migration in Brussels on Friday, the ministers of Romania, Bulgaria and Croatia will no doubt be on the sidelines for their countries to join Schengen. A decision on this matter is scheduled for the next Council of the Interior, which will be held on December 8 and 9.

What to watch today

  1. The Council of the European Economic Area meets in Brussels (EU plus Iceland, Liechtenstein, Norway)

  2. The European Parliament called for the inclusion of Russia on the list of state sponsors of terrorism

  3. EP President Roberta Metsola holds a press conference on “Generators of Hope” to gather electricity generators for Ukraine

Notable, quoted

  • Kosovo on the back: Pristina has bowed to US pressure and agreed to continue talks with Belgrade on car number plates as Western concern grows over Kosovo’s plan to crack down on ethnic Serbs who refuse to accept its jurisdiction.

  • Help with a mortgage: The Spanish government yesterday approved measures to help more than 1 million households with their skyrocketing mortgage costs, including by reducing interest rates for a five-year grace period.

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