The EU faces a tough period as the energy crisis bites and debt troubles return. But the bloc could have the world’s cheapest and cleanest energy by the mid-2030s, and it will probably emerge stronger geopolitically, writes Hugodixon
In some ways, the current difficulties are harder for the EU to manage than the euro crisis of a decade ago. Then the European Central Bank was able to keep interest rates low and buy government debt. That’s not an option now. Indeed the ECB has justWhat’s more, the EU is facing a structural shock from high energy prices. Highly industrialised countries like Germany will have to restructure their economic models. Tensions between governments are rising.
Solidarity is fraying. France has blocked a gas pipeline across the Pyrenees from Spain. And Germany is spending 200 billion euros to bail out its consumers and businesses, prompting other countries to complain that Berlin is distorting the EU’s single market by giving its companies an unfair advantage.
EU leaders are already complaining about high interest rates, with Giorgia Meloni, the new Italian prime minister, criticising the ECB last week. But the central bank cannot avoid raising interest rates even if it wanted to. Inflation in the euro zone wasHigh inflation has had the side benefit of lowering government debt as a proportion of GDP. But if inflation expectations become entrenched, investors will demand higher yields to hold government bonds, pushing up the cost of borrowing further.
Highly indebted countries such as Italy fear that borrowing more would add to their debt problems. That’s why they want the EU to issue debt collectively as they did during the pandemic. But Germany and some less indebted countries are resisting this.
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