The European Union intends to change the existing restrictions on the amount of the national debt of its member states and their annual deficit, which were long-standing criteria for joining the Union. This is in an attempt to fight the current energy crisis and create a functioning “green economy” in the future. This is what the President of the European Commission, Ursula von der Leyen, said today (Wednesday), in her annual “State of the Union” speech.
The rules of the Maastricht Treaty, which led to the creation of the European Union, stipulate, among other things, a deficit rate that does not exceed 3% of GDP and an annual national debt rate that does not exceed 60% of GDP. A large number of European countries over the years deviated from these rules “temporarily”, and received approval for this from the European Commission. However, now it seems that the trend in which countries deepen their deficits and debt has become more legitimate, and von der Leyen hinted that a reform should be carried out and the rules changed. “Member states should have more flexibility regarding their plans to reduce debt,” she said. Von der Leyen added that more concrete proposals will be discussed at the summit of the heads of the Union this October. The French Minister of Finance previously declared that the rules of the Maastricht Treaty “are no longer relevant”.
An opening to deal with the crisis
Such a declaration opens the door to more fiscal plans in Europe designed to deal with the energy crisis. Among them the German plan worth 65 billion euros for the coming year, Italy’s plan to subsidize prices and help vulnerable households worth 30 billion euros, and other measures. Most European countries have already significantly deepened their debt during the corona epidemic, with aid and rescue programs worth hundreds of billions of euros. The countries are also planning huge investments in the hydrogen economy, renewable energies and infrastructure.
Von der Leyen also presented several sections of the EU plan to combat the energy crisis, which threatens to cause an economic and humanitarian crisis this coming winter. Faced with the sanctions to which the Union committed itself against Russia on the one hand, and the Russian response which included stopping the flow of gas through the central gas pipeline to Europe on the other hand, most of the residents of European countries are facing a difficult winter – heating costs skyrocket significantly and contribute to the difficulty of dealing with the rise in prices. The business sector is also threatening to shut down or reduce activity, and the entire European Union is facing an acute economic crisis.
“We have never presented such a speech while war is raging in Europe,” said von der Leyen, who chose to wear clothes in the color of the Ukrainian flag to symbolize support for the country. She said that “Team Europe” recorded several victories in the fight against Russia, such as the swift financial sanctions imposed on Moscow. According to her, the Russian military had to extract chips from washing machines to put them in guided weapons, and car production in Russia collapsed by 75% compared to last year. The World Bank estimated, however, that the economic damage to Russia this year will amount to 5.5%, less than experts expected at the beginning of the war.
Taxation of profits and price subsidies
Von der Leyen presented several points with which, according to her, the Union will be able to deal with the Russian reaction and the disruption in the energy markets. The price of gas in Europe jumped seven times the average price, with significant consequences for the population and the industry. The first step, she noted, is the taxation of “excess profits” of energy companies that were not required to spend higher than usual (from the coal, nuclear, wind, solar, biomass and hydroelectric fields, for example), but still benefited from the jump in prices. The tax to be collected was estimated at 140 billion euros, according to her, which will be used by countries to subsidize energy prices and lower them. The finance ministers of the Union have already approved such a move, and it can be accepted relatively quickly in the coming months. The plan outlines a tax of 33% on profits beyond 20% more than the annual average in the last three years. It will also consider not paying non-gas-based energy companies a rate of more than €180 per megawatt-hour. It will make it easier for governments to provide liquidity to energy companies on the brink of bankruptcy. Von der Leyen said that she hopes that the talks with Norway will also lead to a reduction in the price of the gas that the Scandinavian country supplies to Europe.