How the EU’s frugals and free-spenders may reach a green subsidy deal

Good morning. To start: European Council president Charles Michel says he wants EU governments to back plans to use $300bn worth of frozen Russian foreign exchange reserves to help fund Ukraine’s reconstruction, telling us that he saw “serious political interest to make progress . . . and deliver”.

Michel also set out areas where he thinks the 27 could reach agreement on ways to fight back against US subsidies, as my colleague Sam explains below. And in Ireland, minister (and Eurogroup president) Paschal Donohoe is under renewed pressure over irregularities in his 2016, and possibly 2020, campaign expenses. Our Dublin correspondent assesses the damage.

Spending targets

A cornerstone of the EU’s planned response to America’s $369bn Inflation Reduction Act will be making it easier for member states to pump public money into green priorities, writes Sam Fleming.

But this proposal to loosen state aid restrictions has set alarm bells ringing around the union as some capitals warn that it will further tilt the single market in favour of countries with the deepest pockets (most obviously Germany).

We are accordingly heading into yet another round of the perennial debate over fresh EU-level funding.

Charles Michel will have the job of presiding over the upcoming bunfight. In an interview, he spelt out where he sees the possible landing zones.

The EU firstly needs to speed up the disbursement of funding that has already been lined up, and make it possible to “rechannel the existing means to new priorities,” he said.

On top of this the most “pragmatic” course of action would be to extend the EU’s pandemic-era Sure scheme, which raised around €100bn of common debt to support member states’ unemployment reinsurance schemes.

“It’s the easiest way to guarantee as much as we can the solidarity among the member states, knowing that not all member states have the same [fiscal] capacities,” he said.

A further, longer-term response would involve creating a so-called sovereignty fund, an idea also under development in the European Commission.

Michel wants the European Investment Bank to play a central role in the fund, stressing that participation would be voluntary for member states and that the fund should invest in corporate equity. The tool would be “powerful leverage for the EU in future to be more master [of] our own destiny,” he said.

The trick, according to Michel, will be to forge a joined-up approach that keeps all the member states on board. “It’s important to avoid a certain form of cherry picking,” he said. “It’s important all member states are comfortable with a coherent package.” 

The commission is due to spell out its own ideas in a couple of weeks’ time, ahead of a summit in February to be presided over by Michel. Reaching a deal on all this will be formidably difficult.

Chart du jour: Divided Germany

Olaf Scholz’s refusal to allow German tanks to be sent to Ukraine is exasperating his Nato allies, but the chancellor is correct that his cautious approach reflects public opinion in the country, write Guy Chazan and Laura Pitel.

Poster boy

Such is the reputation of Paschal Donohoe, Ireland’s public expenditure minister, for sound financial management and competence that he was re-elected unopposed as Eurogroup president last month despite no longer being finance minister.

So the fact that he of all people should be at the centre of a scandal over the cost of putting up posters in his Dublin constituency in 2016 has turned heads, writes Jude Webber.

Context: Since Leo Varadkar, leader of Donohoe’s centre-right Fine Gael party, returned to the premiership in Ireland’s three-party coalition last month, a junior minister has already had to resign in scandal. The next general election is not due until 2025 but with Fine Gael (the most unpopular of Ireland’s big three parties) down four points in a poll published yesterday, politicians are fearing the worst if postergate spirals.

Donohoe has apologised for errors in his declarations over donations by a businessman friend who organised his election postering.

The sums in question look tiny compared to past political scandals in Ireland. But Donohoe has twice publicly made a hash of explaining things.

He will have a third shot at it tomorrow, taking questions in the Dáil parliament, and has hinted that he will also raise his 2020 general election campaign expenses.

One of the bibliophile’s favourite books last year was Bono’s autobiographical Surrender. He has no such plans. The government has closed ranks around its star minister. If he is forced out, the whole coalition could crumble.

What to watch today

1. EU foreign affairs ministers assemble in Brussels to talk about Ukraine, the Sahel and new Iran sanctions. Arrivals from 8am.

2. ECB president Christine Lagarde gives a speech at the Deutsche Börse Annual Reception at 6.45pm.

Now read these