Dispute over French, German-led energy initiative threatens fragmentation within EU

A proposed extension of energy subsidies championed by France and Germany is causing tensions with smaller European countries seeking to end what they perceive as detrimental payouts. The Politico magazine clarifies that while the French government is pushing for an extension of crisis measures until the end of 2024 to shield industries from rising energy prices, other EU countries are standing firm in their commitment to phase out the Temporary Crisis and Transition Framework (TCTF) by December 31, citing improved economic conditions and energy market stability across the EU. Caliber.Az reprints this article.

"A French and German push to extend energy subsidies is risking a rift with smaller countries that want to end payouts they see as harmful.

The French government will ask the European Commission to extend until the end of 2024 crisis measures that have allowed governments to cushion industry from higher prices, a European diplomat with knowledge of the matter told POLITICO. Last week, German Chancellor Olaf Scholz said he would 'lobby in Brussels for an extension'.

Dutch Economy Minister Micky Adriaansens told POLITICO that she was sticking by what she and other countries had already told the Commission on seeing no need to delay a December 31 phase-out of the Temporary Crisis and Transition Framework (TCTF).

'Right now we persist by our letter to the Commission as the overall economic outlook and situation in the energy markets has improved significantly in the whole EU,' she said in an emailed statement.

'This is a point of view which has not only been shared by the four other member states involved in the joint statement but also has wider support from other member states,' she said, referring to the letter to acting competition chief Didier Reynders also signed by Belgium, Denmark, Estonia and Finland.

The state aid rules were introduced in March 2022 to allow governments to help energy suppliers and companies cope with rocketing prices in the wake of the Russian invasion of Ukraine. It's one of a series of state aid measures that can allow larger richer nations to dig deep in their pockets to help their companies, alarming some smaller nations that don't have the same means to do so.

European Central Bank President Christine Lagarde this week called on governments to now roll back support measures, saying it was 'essential to avoid driving up medium-term inflationary pressures which would otherwise call for even tighter monetary policy'.

She cited risks of a fresh geopolitical shock to energy prices that could see inflation increase again, just as the bank halted a series of interest rate rises at a record 4 percent.

The Commission's framework also includes exemptions to state aid rules for green investments, which will be phased out in 2025. Scholz wants these extended until 2027.

Several French officials stressed that France has not yet finalized its position on Scholz's proposal, but warned against the risk that relaxing state aid rules too much and for too long might further fragment the internal market and favor richer countries.

An Elysée official noted that extensions could cover only some parts of the framework. And a high-ranked French diplomat stressed that a 2027 extension could be dangerous if the Commission doesn't couple it with more support to countries with less spending power, such as giving them more flexibility to spend existing funds.

Earlier this month, six member countries told POLITICO that they had asked the Commission to phase out energy subsidies as planned, including Poland and Finland which were hit hard by the loss of Russian gas supplies".