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EU sanctions should not hurt the middle class, warns Belgian PM Alexander De Croo

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By Jack Parrock  & Jorge Liboreiro
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Prime Minister De Croo said the EU's foreign policy should have the backing of the middle class.
Prime Minister De Croo said the EU's foreign policy should have the backing of the middle class.   -   Copyright  Sergei Grits/Copyright 2022 The Associated Press. All rights reserved

EU sanctions should hurt Russia more than they hurt European citizens, Belgian Prime Minister Alexander De Croo has warned.

"Your foreign policy can only survive if your middle class is still able to defend it," De Croo told Euronews in an interview at the World Economic Forum in Davos.

"Having the buy-in from our population is an important thing because I fear we're in for a long period of instability and we need to make sure that people are not suffering too much."

His comments come in the midst of negotiations around a stalled proposal to introduce an EU-wide ban on all Russian oil imports. The embargo, the centrepiece of the sixth package of EU sanctions, is considered the most radical and consequential measure taken by the bloc since Russia launched the invasion of Ukraine.

Hungary, a landlocked country that relies heavily on Russian-operated oil pipelines, has emerged as the most vocal opponent and has so far refused to approve the ban. Slovakia, the Czech Republic and Bulgaria have also raised objections. EU sanctions require the unanimity of the 27 member states.

De Croo said he was in favour of the embargo but stressed that, given the economic magnitude of the measure, the "legitimate" concerns from all countries should be taken into account.

"Everyone is looking at Hungary today, but it's not only Hungary who has difficulties with the complete oil ban. Some countries are landlocked and they will have difficulties to have access petrol for their cars," De Croo said.

"If we take sanctions, the basic principle has always been it needs to hurt on the other side and we need to mitigate the impact on our side as much as possible.

"Our middle class is suffering and it's not easy these days. Energy prices are going are going up. So if there are concerns on security of supply, on prices, let's tackle them."

De Croo appeared confident the proposal would "get through the line" in the coming days.

A two-day EU summit is scheduled to take place early next week, but Hungary's PM Viktor Orbán has formally asked to remove the energy embargo from the agenda. Diplomats had hoped the summit would be the moment to achieve the much-needed breakthrough.

"I would rather take a decision on an oil ban," De Croo said, "but, at the same time, also know how are we going to deal with the repercussions of such a decision?"

'If the free market is not functioning, you need to intervene'

Speaking about the power crunch that has been haunting the continent since early autumn and has been exacerbated by the war, the Belgian PM said market intervention was needed to adjust electricity prices, which, in his view, "are not reflecting reality."

"We need to take measures that really go to the root cause of the problem," he said. "It's not subsidies that are going to solve this."

Today, the EU's electricity market works on the basis of marginal pricing, also known as "pay-as-clear market". Under this system, all electricity producers – from fossil fuels to wind and solar – bid into the market and offer energy according to their production costs. The bidding starts from the cheapest resources – the renewables – and finishes with the most expensive one – usually natural gas.

Since most EU countries still rely on fossil fuels to meet all their power demands, the final price of electricity is often set by the price of coal or natural gas. If gas becomes more expensive, electricity bills inevitably go up, even if clean, cheaper sources also contribute to the total energy supply.

Countries like Belgium, France, Italy, Spain and Portugal have complained about this contagion effect and demanded reforms to decouple gas from electricity prices. Other countries are reluctant to take such a drastic move and argue the current rules promote transparency and green investments.

"I'm a believer of the free market. I'm a liberal. But if the free market is not functioning, the market is not serving its purpose, you need to intervene," De Croo said.

"More and more countries are realising that all of us are ruining our public finances and trying to support our middle class. But in the end, the impact that we can have is limited because the prices have gone up at such a high level."

'Too early' to talk about common EU debt for Ukraine's reconstruction

De Croo also discussed Ukraine's bid to join the EU, a lengthy process he described as "administrative". The Commission is expected to release next month its first opinion on the application.

"There's a reason why it is a long process: that's because we have developed such a vast array of rules in Europe. If someone joins the European Union, they need to be ready," he said. "It takes time to be at the right level."

The PM added the focus should be instead on support for Ukraine's post-war reconstruction, both on the "material" and the "immaterial side," referring to rule of law reforms and the fight against corruption.

A recent report by the Kyiv School of Economics revealed the losses from the war range from $564 billion to $600 billion (€568 billion), and could increase even further as the conflict drags on.

To address these enormous needs, the European Commission has proposed to set up a new financial facility and raise a mix of grants and loans for Ukraine. The money would come from the EU budget, contributions from member states and, notably, common EU debt, a long-held taboo that was broken in 2020 to establish the €750-billion coronavirus recovery fund.

The proposal is just a draft idea and needs to be fleshed-out and negotiated. Germany and the Netherlands have already announced their opposition to fresh EU bonds.

"Which instrument we use for the reconstruction of Ukraine? Honestly, for me, as long as it is investment, common debt works for investment. You should never use it for current expenses. That would be wrong," De Croo said.

"Do we need to use it for Ukraine? Let me put it that way: to me, it's not excluded to do it, but I think it is too early to take a position on that," he added.

"Here, we're doing it upside down. We're first having the discussion on the instrument and then seeing what we'll be doing. Let's first decide on what we would be doing and then I'm open for a discussion, but I haven't made up my mind yet. "