European Commissioner for the Economy Paolo Gentiloni receives his guests on the 12th floor of the Berlaymont, headquarters of the European Commission in Brussels. On one wall is an oversized Croatian euro coin made of cardboard. The fact that the European common currency is to be introduced in the Balkan country on Jan. 1, 2023, is one of the few pieces of good news coming from the EU recently. Now, Gentiloni finds himself in the middle of Europe’s fight against the energy crisis.
DER SPIEGEL: Mr. Commissioner, gas prices reached a new record this year. Is the eurozone facing a recession?
Paolo Gentiloni, 67, is the European Commissioner for Economy. A member of the social democratic Partito Democratico, Gentiloni was Italian prime minister from 2016 to 2018.
Gentiloni: Nobody can exclude that possibility. The inflation we are currently experiencing will plunge our economy into turbulence, and the coming winter could be one of the worst in history. We are experiencing an unprecedented level of insecurity. But the numbers for the EU economy on the whole remain positive, and the situation on the labor market is good.
DER SPIEGEL: French Prime Minister Élisabeth Borne has warned that energy might have to be rationed in the EU. Is that something you are concerned about as well?
Gentiloni: That depends on the decisions made by Russian President Vladimir Putin and on the actions we take as well. Energy savings are already necessary now. We have, to be sure, seen positive developments when it comes to filling natural gas storage facilities and saving energy. But the situation in EU member states is highly variable. Rationing may become necessary in some of them.
DER SPIEGEL: How can that be prevented?
Gentiloni: With a strong, joint response. Governments are already taking strong measures. By the end of August, almost 1 percent of the EU’s economic output flowed into the mitigation of the energy crisis. Additional measures will be announced, such as the relief package presented by the German government. We can assume that these support measures will amount to around 2 percent of economic output by the end of the year.
DER SPIEGEL: Will EU member states really be able to maintain such huge spending programs?
Gentiloni: These national reactions were necessary and unavoidable. But to the extent possible, they should be temporary and targeted. The latter has not always been the case. And it will also be difficult to limit their timespans. Given the current situation, what government would dare put an end to aid programs that were only introduced a month ago? For countries that are already suffering from high debt loads, it could produce permanent budgetary problems.
DER SPIEGEL: The result will be vast mountains of debt. At the same time, interest rates are climbing, which will make it even more difficult for some countries to service their loans. Are you afraid that some EU countries could run into difficulties and a new euro crisis may emerge?
Gentiloni: At the moment, definitely not. Sure, interest rates have risen slightly. But they are still quite low. Plus, the European banking system is much stronger than it was 15 years ago. Nowhere can I see the economic crisis overlapping into the financial sector.
DER SPIEGEL: In view of the crisis, the International Monetary Fund (IMF) has called on Europe to accelerate planned reforms to European fiscal rules. Is that something you support?
Gentiloni: In the coming weeks, the Commission will present proposals. The crisis presents us with an opportunity to finally overcome old differences in the debate. We need solid finances in Europe, but we must be careful to avoid choking off growth.
DER SPIEGEL: The German government has made it clear that it is opposed to any change to the rules. Berlin wants to ensure that new borrowing does not exceed 3 percent of gross domestic product. Are you disappointed with the proposals?
Gentiloni: No. I also believe the 3-percent target is a good criterion for ensuring that budgetary policy remains on course. We should stick to it. At the same time, the German government recognizes that we cannot overwhelm countries when it comes to paying down debt ...
DER SPIEGEL: You are referring to the rule according to which countries with high debt loads must pay down a twentieth of their debt above 60 percent of GDP each year …
Gentiloni: Precisely. This rule cannot be applied because it would force harsh austerity measures in some cases. The fact that Berlin agrees is a good starting point for further debate.
DER SPIEGEL: On the other hand, the German government is opposed to your plan allowing the Commission to negotiate budgetary policy specifics with member states. Are you still committed to that proposal?
Gentiloni: I am guided by the procedure adopted for the European Corona Reconstruction Fund. To ensure more national responsibility, member states could be granted more leeway on debt reduction, insofar as fundamental joint principles are respected, not least those pertaining to debt sustainability. If member states commit to reforms and investments, they could be granted more time to pay down their debts. That would also be a way to ensure that sustainable finances and growth mutually reinforce each other.
DER SPIEGEL: The IMF has proposed the establishment of another crisis fund modeled after the Corona Reconstruction program. What do you think of that idea?
Gentiloni: First, we should focus our efforts on maximizing our existing crisis instruments and adjusting them to fit the new situation, like the Reconstruction Fund, for example. And we still have some leeway. But if the economic downturn becomes worse and begins affecting the labor market, we will have to reconsider. In such a situation, it could become necessary to consider further economic stimulus measures.
DER SPIEGEL: Europe has already piled up a fair amount of debt. How do you intend to ensure that future generations aren’t unduly burdened?
Gentiloni: Taken together, the eurozone is currently carrying a debt load equivalent to around 100 percent of economic output. That is a lot, but not an overwhelming amount when compared to other industrialized countries like Japan or the U.S. The problem in the eurozone is more that debt loads are so different between member states.
DER SPIEGEL: Sovereign debt is particularly high in your home country of Italy, where it is the equivalent of 150 percent of GDP. And yet some political parties are campaigning on lower taxes and higher pensions.
Gentiloni: I don’t want to say anything about domestic policy in Italy. Only this: It is well known that many promises are made during a campaign. It is also well known that the next government will also have to find the right balance between revenues and spending – and will have to pay attention to European requirements and the reaction on the financial markets when doing so.
DER SPIEGEL: The problem, though, is that past Italian governments haven’t always done that.
Gentiloni: The eurozone has six members, including some large ones, that are carrying a debt load in excess of 100 percent of economic output. In those countries, new borrowing must be limited, and consistently so. At the same time, we don’t just have a mountain of debt in Europe, but also a significant need for investments. It is true that we must protect the next generation from too much debt. But we also have to ensure that the next generation doesn’t find itself at a disadvantage in international competition.
DER SPIEGEL: Many experts propose excluding investments in digital and the environment from the fiscal rules. What do you think of that idea?
Gentiloni: It won’t be easy to agree on an exemption of that nature. But it is clear that we need to incentivize more investment in the strategic areas of our policy. That includes the green and digital transformations, but there are also other fields that some member states point to, such as defense.
DER SPIEGEL: First, low interest rates made it difficult for European savers, and now higher prices are doing the same. What do you recommend?
Gentiloni: I’m not a financial adviser. In times of great uncertainty, caution is definitely not the worst advice. My message as commissioner is: In this difficult situation, in which we are exposed to the dangers associated with both inflation and recession, Europe must be prepared to take action. We have to show the same determination we did in the fight against the COVID crisis. For that, we need joint European initiatives. If we are successful in demonstrating solidarity in the energy and natural gas crisis, we will overcome the difficulties.