MOSCOW, Sep 2 — PRIME. Today, with European energy markets in complete chaos, gas prices teetering on the brink of surrealism, and the energy crisis escalating into a full-blown economic crisis, the EU authorities still have a chance to save themselves, writes The Economist.
Underlying natural gas prices rose 30% last week, the newspaper noted. Last summer, France and Germany entered into annual electricity trading contracts at around $118 per megawatt-hour, and more recently they have soared above 1,000 euros. Oil prices have fallen but are still trading at the equivalent of about $400 a barrel of oil. Earlier, the head of oil and gas company Royal Dutch Shell, Ben van Beurden, had already warned that European countries could face gas shortages for several winters due to reduced supplies from Russia.
The authors of the publication warned that the crisis is only gaining momentum, and it will further increase the pressure on the EU economy, which continues as the European Central Bank raises interest rates to fight inflation. The single currency is at its lowest level against the dollar in two decades, and many economists are predicting a recession in the next few months. Ahead looms the prospect of riots in the European Union due to rising prices and quarrels between its member states, writes The Economist.
The European Commission has proposed limiting the price of gas used to generate electricity. This topic will be discussed at the ministerial summit on September 9, but, according to the publication, although it sounds beautiful, in reality such actions can be counterproductive – because the measures will not curb the demand for scarce energy. According to one study, the cap imposed in Spain has resulted in a 42% increase in gas-fired electricity generation since June. A pan-European policy will only further increase gas demand, raising the chances of winter rationing.
The authorities of the EU countries should have focused on two more important tasks, writes the British edition. The first is to allow the market mechanism to contain demand by providing support to the most vulnerable segments of the population. Large cash injections would be needed, but targeted aid could limit spending, since, according to the IMF, policies that provide discounts and cash transfers to the poorest 40% of the population will cost less than current policies, which mainly include cutting taxes on fuel or capping retail prices.
The second priority is to increase gas supplies to the EU countries. This is one of the reasons French President Emmanuel Macron recently visited Algiers. Today, insufficient investment and differences in standards are preventing the flow from Spain and France to Germany and Eastern Europe, so first of all the EU needs to provide a clear mechanism for cross-border carbon regulation.
But the solution to all these issues will cost a lot. So far, Greece, Italy and Spain, among the most indebted members of the eurozone, have spent 2-4% of their GDP on budget handouts to cushion the energy shock.
The Economist recalled that the European Union has a pandemic recovery fund of 807 billion euros, which can be allocated as loans and grants. Payments for energy projects could be accelerated and the European Commission could offer cheap loans to help finance targeted financial support.
But be under no illusions that the current crisis will not be easy to resolve.