Controversy over German aid packages: The “double boom” has good things for Italy, too

Controversy over German aid packages
The “twin boom” also has good things for Italy

Von Andrea Fatigued, Milan
08.10.2022, 11:50 am

In the rest of Europe there is some enthusiasm about German aid packages to combat the energy crisis. However, from the Italian point of view, German solo efforts also have their good side. Even more dangerous is the vision of the parties that will soon rule the country.

Germany’s €200 billion “double boom” was not well received in Italy. Even Prime Minister Mario Draghi is balanced in his statements, exasperated and warned: “In view of the challenge we face [Europäer] It’s wrong to stand together and go separate ways because of our different budget lines.” The EU must act united, firm and united, as it did in supporting Ukraine.

Indeed, the federal government’s actions do not match the rejection of a German “Sonderweg” that Chancellor Olaf Scholes repeats at every opportunity. Draghi, for example, has been calling for a European price cap on gas for months. In late September, 15 countries, including France, wrote a letter to European Commission President Ursula von der Leyen calling for such a price cap. But at an informal meeting of EU heads of state and government in Prague, the prospect of implementing a price cap appeared to be off the table.

If Germany defends its interests, Italy can do the same.

But again double boom. There were angry reactions in Italy of all parties. Of course, Germany has never fared well in a right-of-center coalition that will soon form a new government. However, they also see the German relief package as an opportunity to use it to their advantage.

Giorgia Meloni, the next head of government and head of the right-wing Fratelli d’Italia party, said: “Each state defends its interests first, so when we indicated that we would defend Italy’s interests first in the EU, we were criticized.” However, Germany has provided convincing evidence that this approach is more reasonable. National-populist Lega boss Matteo Salvini also sees his claim vindicated: “If Germany puts 200 billion euros on the table, Italy must also take new loans.” It’s a demand that Meloni doesn’t share (yet), because he says it could fuel more speculation in the gas market. Conclusion: Germany also causes trouble in the Italian right-wing coalition.

Many political scientists were also outraged. In the left-liberal daily Domini, Mario Giroud describes Germany as egocentric: “Merkel would never have done it. Chancellor Olaf Scholes has taken a decision that could kill Europe if countermeasures are not taken immediately.” European unity, much talked about by Scholes on August 29 at Charles University in Prague, now seems like worn-out lip service.

In terms of GDP, Italy contributes the most

Unlike politicians and columnists, many economists consider the criticism of Germany to be, to say the least, unfair. After all, Italy’s economy, primarily that of northern Italy, was largely dependent on Germany: if the German economy collapsed, the Italian economy would also collapse. “Of course, the communication could have been better,” says Veronika de Romanis of ntv.de. But she thinks the criticism is unfair. De Romanis is an economist and author – among other things, he wrote a biography of Merkel. “Do not all states behave this way? Of course, each within their own limits.”

De Romanis points to data from the Brussels think tank Bruegel. According to them, Italy provided around 60 billion euros in aid, which corresponds to 3.3 percent of GDP, to lower energy prices by the end of September. Germany 100.2 billion euros in the same period, which is 2.8 percent of German GDP. “The more freedom Italy has, the more relief packages we have,” he says.

Germany is doing nothing but what Brussels expects: supporting the economy in the here and now. Of course, these short-term measures should not stop there. Common solutions must be found in the medium and long term. An instrument similar to the EU aid fund SURE is being talked about. SURE has protected jobs and workers during pandemics. What we need now is a pot that states with weak balance sheets can access quickly and at affordable interest rates to support economies and households.

“This is good news for Italy.”

David Tabarelli, head of Italian research firm Nomisma Energia and one of the leading experts in the field, also sees Germany’s criticism as overblown. “Of course, the war causes great political disorder in Europe,” he tells ntv.de. “But the seriousness of the situation justifies Germany’s decision.” In addition, one has to wait and see how the 200 billion euros will be used. Despite all the discontent, some of it justified, one should not overlook the negative side of this decision, Tabarelli adds: “Unlike the financial and economic crisis, Germany is allowing new debt. That’s good news for Italy.”

In addition to the political chaos caused by the war in Ukraine, there is a chaotic communication that often contradicts citizens and incites hatred for other countries. The Acting Minister for Energy Transition, Roberto Cingolani, sought to reassure Italians by pointing out that the country’s gas storage facilities are already 90 percent full. Germany, with its 200 billion euros, is fueling speculation that gas shortages could occur in the winter, he said immediately afterward. “The truth is, memory is 90 percent full,” Tabarelli says. “Let’s take Italy. Some winter days we use 400 million cubic meters per day. Normally, 200 million comes from reserves and 200 million from imports, 100 of which comes from Russia. But they won’t be this winter. And it’s based on gas prices.”

According to Tabarelli, each country should get as much as possible from domestically available resources such as gas, coal and nuclear power plants. That doesn’t mean stopping the expansion of renewable energies. However, these gaps cannot be filled at present. The EU should signal to sellers that it is ready to rationalize consumption if prices continue to rise. “In that sense, the German relief package is not really helpful.” Because if the government takes part of the energy costs, the consumer is not really encouraged to pay more attention to his energy consumption. However, this also applies to the European gas price range.