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The EU’s Trillion-Euro Question

Faced with a wartime economy, an escalating energy crisis, and technological competition from China and the US, the European Union must take drastic measures to complete its green-energy transition and facilitate critical investments. A sense of common purpose and greater fiscal coordination are essential to achieving both goals.

BRUSSELS – Russia’s invasion of Ukraine has thrown the European Union into yet another full-blown economic and political crisis. But while the war is the immediate cause of soaring gas, fuel, and electricity prices, the roots of Europe’s current pain run much deeper. The vulnerabilities of the European energy system have been evident since at least 2008. But the EU has been too slow to respond, failing to take the necessary measures to ensure greater resilience.

Our current age of “permacrisis” underscores the need for Europe to respond faster and more decisively to shocks. In recent months, European governments have significantly reduced their dependence on Russian gas imports, which plummeted from 45% of the total last year, to just 5-6% currently. But substituting Russian imports is not enough; Europe must also reduce consumption. To offset the severe impact on member states, households, and industry, EU-wide solidarity mechanisms are needed.

So far, such efforts have been lackluster. Germany’s much-criticized €200 billion ($201 billion) rescue package, which aims to shield companies and households from skyrocketing energy prices, is a prime example of the prevailing go-it-alone attitude. Germany’s attempt to gain a competitive advantage over its neighbors may spark a subsidy race that could increase energy prices further. Given the interdependence of EU member states and eurozone economies, this fragmentation is economically and politically toxic.