Spain and Belgium warn of threat to EU single market after German stimulus

Spain and Belgium have issued warnings about the consequences of Germany’s huge fiscal stimulus package for the EU single market as the bloc attempts to muster a unified response to soaring energy prices.

The announcement of a €200bn fiscal stimulus package by Germany last week has prompted other EU member states to warn of unfair competitive distortions if individual states, particularly those with deep pockets, pursue large support measures that aid their companies.

Spain’s prime minister Pedro Sánchez told a German newspaper on Wednesday that the single market must not be allowed to “break apart” and that although Germany’s move was “justified”, it was important to “preserve a balance” to ensure fair competition across the EU .

“Such imbalances in fiscal spending are dangerous” and risked “degrading the European single market because everyone is just doing their own thing”, Belgian prime minister Alexander De Croo said in a separate interview.

Speaking to the Frankfurter Allgemeine Zeitung before meeting his German counterpart Olaf Scholz, Sánchez said that Germany’s move was understandable because of its dependence on Russian energy. But at a joint press conference with Scholz on Wednesday evening, the Spanish leader said: “There also needs to be responses at the European level to defend something very important: the level playing field.”

Belgium’s prime minister Alexander De Croo said Germany’s move risked ‘degrading the European single market because everyone is just doing their own thing’ © Stephanie Lecocq/EPA-EFE/Shutterstock

Sánchez is closely aligned with the German chancellor on other energy issues, including the need for more cross-border gas and electricity links.

The warnings echoed strong criticism from Italy’s prime minister Mario Draghi and Hungary’s leader Viktor Orbán. They come as the European Commission is trying to pull EU capitals together to take common action on supporting businesses and consumers suffering from high energy prices.

At the press conference with his Spanish counterpart, Scholz defended Germany’s initiative. “It is simply another package of support. Spain has been offering support for some time, France has always done it, the Netherlands just announced another program. . . Great Britain too,” he said. “It’s a program we have planned to run for three years and it’s adapted to the size of the German economy. Every country does it and every country can do it.”

Commission president Ursula von der Leyen told the European parliament on Wednesday: “We need to protect the fundamentals of our economy, and in particular our single market.”

Asked about the impact of the German package on the EU’s single market, Margrethe Vestager, the EU’s competition enforcer, said it was too soon to draw any conclusions.

“We will keep a very keen eye — the integrity of the single market is absolutely key,” she told the FT on Wednesday.

Vestager said the commission was aiming to come out with proposals this month to extend its special crisis framework for state aid. The intention is to speed up applications by member states wanting to channel funds to private enterprises. The goal, she said, would be to extend the special rules for another year until the end of 2023.

Von der Leyen was speaking ahead of an informal EU summit in Prague on Friday during which member states will discuss ways to limit punishing increases in energy prices. A growing number of countries have backed the idea of ​​a cap on gas prices, which have a prominent role in driving the cost of electricity given the design of EU power markets.

Some diplomats have detected growing momentum behind a model used in Spain and Portugal under which gas prices are limited.

Von der Leyen said such a measure would “be a first step on the way to a structural reform of the electricity market”, something that the commission has promised to address early next year.

A senior EU diplomat said that capping the price of gas used for electricity “is not a valid model for many or even most member states”, while several other diplomats and politicians fear that such a move risks increasing gas consumption by lowering prices at a time when European supplies are acutely tight.

Commission figures show that gas consumption in Spain increased 10.9 percent in June, the month after its price cap was introduced compared with its five-year average, although the Spanish government has said this was also down to a drop in hydropower during the summer’s drought .

France has indicated support for the “Iberian model”, which it has benefited from by importing cheaper electricity from Spain.

Sánchez, however, took aim at France on Wednesday for frustrating Madrid’s ambitions to build a proposed new gas pipeline, known as MidCat, across the Pyrenees to its northern neighbor.

Sánchez recalled that French president Emmanuel Macron had made commitments on power connections in 2018, and said: “We call on the French government to fulfill its obligations now.”

Scholz told the press conference that “I explicitly support” MidCat, adding: “We do not have the impression that this has been excluded.”

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