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The next Franco-German subsidy spree


FRANCO-GERMAN RIFT OVER POWER SUBSIDIES: A fight between Paris and Berlin is brewing over the future of Europe’s energy intensive industry — including sectors that once drove the Continent’s industrialization, such as steel and chemicals, and incoming energy guzzlers such as battery and microchip factories.

Both countries are clashing over whether and how they should be allowed to subsidize electricity prices for their industrial users. The fight is laying bare the sort of zero-sum thinking prevailing on both sides of the Rhine — while a potential peace deal could see both countries subsidizing their industries well into the future, leaving everyone (except those industries) worse off.

Let’s take a step back: Since the end of the COVID pandemic and the beginning of Russia’s war against Ukraine, EU countries have subsidized the hell out of their energy markets (think of subsidies on everything from gasoline to natural gas and electricity). Those subsidies are usually banned under EU law (for good reason) but the Commission pressed “pause” on enforcing that ban.

Floodgates are closing: But the El Dorado days for energy guzzlers will soon be numbered. On December 31, the EU’s “temporary Crisis and Transition Framework” expires, meaning EU governments will have to close the subsidy floodgates. The Commission has already signaled that it will not extend the exemptions for another year.

What France wants: Paris, however, is dead-set on continuing its electricity subsidies and is seeking to create a loophole that would allow it to permanently subsidize nuclear energy, three senior officials involved in the negotiations told Playbook.

A permanent loophole: France wants to enshrine the right to subsidize nuclear power stations in the new electricity market reform legislation that is currently in the EU pipeline. The idea would be to allow countries to pay subsidies “for new nuclear plants and updates to existing ones that increase their capacity,” one senior official told Playbook.

The biggest opponent to that plan? Germany, which fears that its heavy industry will close up shop and move across the Rhine, lured by subsidized French nuclear power. “It’s hard enough that the U.S. has much cheaper energy,” one German official involved in the discussions said. “But if our immediate neighbor does it, it’s a different ballgame altogether.”

One senior German politician asked pointedly: “If nuclear energy is so cheap, why do the French need to subsidize it?”

The wider picture: France’s nuclear subsidy ambitions are also playing a key role in the race for the next boss of the European Investment Bank — the world’s biggest multilateral financial institution. French President Emmanuel Macron has made clear he will back the candidate that promises to finance nuclear energy (more on that race below).

MEANWHILE, GERMANY ALSO DEBATES MORE ENERGY SUBSIDIES: German Chancellor Olaf Scholz and his ministers meet today at the government retreat in Meseberg north of Berlin to discuss a number of issues — including a new proposal for electricity subsidies.

Watt’s the idea? Scholz faces pressure from his own party to establish a subsidized electricity price for German industry. A paper adopted by the Social Democrats’ parliamentary group on Monday calls for a price fixed at 5 cents per kilowatt hour for five years initially.

Single market woes: The paper says Germany should negotiate a deal with Brussels to allow such subsidies — what the SPD’s paper does not mention, however, is that such measures can distort the single market, leading companies to invest in countries with the deepest pockets and sweetest subsidies, rather than in the most efficient ones.

Coalition debate: German Economy Minister Robert Habeck, from the Greens, argued in July that such an industrial energy price was needed to avoid an exodus of German industry, but Scholz and his other coalition partner, the liberal FDP, remain skeptical, my colleague Hans von der Burchard reports.

Return of the zombie economies: But as the — increasingly sidelined — free-market orthodox in the Commission warns: If Paris and Berlin perpetuate such subsidy schemes, they will not just undermine the EU’s single market and sow mistrust among smaller EU countries, but risk triggering new trade wars.

Other implications: Energy subsidies are also frowned upon internationally under World Trade Organization rules. In fact, the EU uses China’s energy subsidies as an argument to impose counter tariffs on Chinese steel, ceramics, aluminum and other products. Ultimately, Germany and France would be undermining themselves, diverting resources to artificially prop up dying industries — to the expense of more innovative ones.

In more positive news: Like in any market, energy prices will only lower if consumption goes down or supply goes up — and there’s some progress on the latter front. Most EU countries will hit their 2030 renewable targets ahead of time, new data released this month shows, fueled by explosive growth in solar power.

Bright spot: The bloc added 41 gigawatts of new solar capacity in 2022 — a 40 percent increase on 2021, and new capacity is expected to rise again to over 50 GW installed this year, according to data from the SolarPower Europe lobby group.

**Where does Europe stand in achieving the Digital Decade 2030 targets when it comes to connectivity?” Join us on September 18 at POLITICO Live’s Spotlight “Connecting the Future: Unleashing Europe’s Telecoms Single Market Potential” to hear from Renate Nikolay, deputy director general, DG Connect, and MEP Andreas Schwab (EPP, Germany). Save your seat as soon as possible!**


VESTAGER VS. CALVIÑO: LET THE RACE BEGIN: They’re two of the best known politicians in Europe, but EU competition chief Margrethe Vestager and Nadia Calviño, Spain’s finance minister, are in the fight of their lives as they battle it out to head the European Investment Bank. 

Decision looms: As Suzanne Lynch and Elisa Braun report, the political horse-trading has begun, with finance ministers due to back a candidate in less than three weeks’ time when they meet in the Spanish city of Santiago de Compostela. 

Spanish spanner in Vestager’s works: When Vestager announced that the Danish government proposed her as a candidate to lead the increasingly important EIB, she seemed to have the best chance to get the job. But the race got a lot harder once Calviño put her hat in the ring.

Pole position: Calviño, a former DG Budget director-general at the Commission, is now best placed to win, according to officials. “This is largely a decision for finance ministers. If you’re a current finance minister you have the advantage,” one European official told Suzanne and Elisa. 

Next steps: The potential runners need to be assessed as fit and proper by the EIB advisory group before European finance ministers agree on their candidate at an informal Council meeting on September 15-16. There are several other candidates in the mix to also consider.

Who is Macron betting on? Vestager’s chances depend in no small part on the French president. Emmanuel Macron has his own interests in the battle: he wants the EIB to help finance French nuclear and defense projects. Recently he clashed with Vestager over the appointment of American economist Fiona Scott Morton as the EU chief competition economist, and he has not yet made up his mind about who he wants to support as future chair of the EIB. Read the full story here.


NEGOTIATIONS WITH SMALLER NON-EU COUNTRIES OPEN DOOR TO ILLICIT MONEY, WATCHDOGS WARN: Andorra, Monaco and San Marino — three nations with a combined population of 150,000 and bordering France, Italy and Spain — aren’t members of the EU. But they are negotiating a deal with Brussels for closer economic ties.

But in a dramatic intervention that threatens to blow apart negotiations with just months before they were due to conclude, Europe’s top finance regulators say a deeper relationship with the trio could open the backdoor to illegal money and make it easier for predatory financial firms to target people in the EU because of lax oversight — harming EU citizens, my colleague Hannah Brenton reports.

‘May be prone to money laundering’: The chairs of the European Supervisory Authorities, which police Europe’s banks, financial markets and the insurance and pensions sectors, warned that the trio “historically maintained less rigorous financial regulations” and “may be prone to money laundering and other illicit activities.”

Financial leeches: In their strongly worded letter to the Commission, obtained by POLITICO, they said that companies might be tempted to set up in the three countries in a deliberate attempt to benefit from lighter financial standards, which would create “significant risks to consumers” if they sold products across the bloc.

Undoing decades of progress: Any financial-services backdoor into the EU would undermine years of regulatory efforts to tighten up the supervision of financial firms. “Proper scrutiny and safeguards are essential to ensure we don’t let any Trojan horse through our gates,” said Paul Tang, a Dutch MEP for the Socialists & Democrats, who has worked on money laundering and tax legislation. “When the European watchdogs issue a joint warning, we’d better listen.”

Saint Marino: The San Marino government read the warnings “with astonishment,” a spokesperson for the country’s foreign affairs ministry said. Problems in the past had “nothing to do with the virtuous process undertaken by the three states that have been transposing European regulations for years and that comply with the main mechanisms for fostering tax and financial cooperation between states with an effort equal to that of EU member states.”

**Taking place on September 28 in Paris, POLITICO Live’s Future of Farming Summit is bringing you a new round of exciting debates at the heart of Europe’s agri-food policymaking. Discover our program and passes here!**


BAVARIA’S AIWANGER IN THE HOT SEAT: Bavaria’s deputy premier Hubert Aiwanger will have to justify himself today during a special coalition meeting over his involvement in the distribution of a Nazi leaflet some 35 years ago. German Chancellor Olaf Scholz said Monday via a spokesperson that the incident “must be cleared up comprehensively and immediately,” adding that “political consequences” may be necessary. More by Hans von der Burchard.

GO LARGE OR GO HOME: European Council President Charles Michel said Monday that he wants the EU to be ready for enlargement by 2030, as the bloc gears up for a renewed debate about its future size. Speaking at the Bled Strategic Forum in Slovenia, Michel said that “Enlargement is no longer a dream,” adding that “There is still a lot of work to do. It will be difficult.” More from Lili Bayer here.

Multi-speed Macron: On the topic of enlargement, Emmanuel Macron said Monday that the EU should “maybe” evolve toward a “multi-speed” union as it considers expanding. “The risk is to think we can enlarge without reform. I can testify that it is hard enough for Europe to advance on sensitive topics with 27 members. With 32 or 35 members, it won’t be any easier,” the French president said. Read more from Clea Caulcutt here.

SPAIN’S FOOTBALL SCANDAL: Spain’s National Court on Monday launched a preliminary sexual assault investigation into football chief Luis Rubiales, just as the country’s national football federation performed a U-turn and demanded his resignation. Aitor Hernández-Morales has been following the story, which has snowballed into a wider debate about sexism in Spanish society.

UKRAINE’S CORRUPTION CRACKDOWN: Ukrainian President Volodymyr Zelenskyy’s move to equate wartime corruption with treason is triggering a backlash from officials and watchdogs, who warn the plan could hobble Ukraine’s main anti-graft forces. The proposal could give more power to state security services, which fall under the president’s command.

Oversight concerns: Two senior officials following the proposal, who were granted anonymity to speak candidly, say concerns are growing within Ukraine’s anti-graft agencies that Zelenskyy’s plan will take top corruption cases away from their oversight and pass them to the Security Service of Ukraine (SBU). The SBU could, potentially, have the power to bury corruption cases involving top officials. Read more from Veronika Melkozerova.

PUTIN’S CROCODILE TEARS: How Russia’s President Vladimir Putin has reacted to the many assassinations that have punctuated his rule is important, POLITICO’s Jamie Dettmer writes in an opinion article. But his public response to Yevgeny Prigozhin’s violent death betrayed a nervousness not seen previously. Read more from Jamie here.

GREECE LOOKS FOR WILDFIRE SCAPEGOATS: Greece is searching for scapegoats to blame as Europe’s largest wildfire spins out of control. Leading Greek politicians have sought to focus the nation’s attention on catching arsonists, with some even spreading conspiracy theories about who set the fires. That, Zia Weise and Nektaria Stamouli write, is stoking political tensions.


— High Representative Josep Borrell in Madrid, Spain, to chair the second Ministerial Board meeting of the EU’s Satellite Centre. Watch.

— Bled Strategic Forum continues in Bled, Slovenia. Begins with the Presidential panel: Global Challenges — Voices from the Youth, at 9 a.m. Full program of events hereWatch.