European ministers sounded defiant as they met in Brussels to discuss plans aimed at halting spiraling energy prices.
“We will prevail,” said EU Energy Commissioner Kadri Simson, even if “a difficult winter is ahead of us.”
In reality, defiance may soon give way to despair.
Friday’s meeting in Brussels capped a hectic week of government activity across the 27-nation bloc that highlighted the complexity of finding a collective response to the energy crisis given the breadth of challenges.
The refrain was the clock is ticking for action. This is all the more true given that just over a week ago, Russia stepped up when Gazprom indefinitely halted gas supplies to Europe via the Nord Stream pipeline.
This sparked another round of fiscal austerity measures as governments announced additional aid to help people pay their bills. They have also been forced to deal with a new financial threat posed by the crisis. As rising energy prices mean some companies struggle to raise enough cash to meet margin calls, countries announced billions of dollars in liquidity financing.
At the EU meeting, consensus remained elusive and solidarity scarce as ministers tried to agree on measures to support citizens and businesses without ruining the entire energy market.
There was tension over the proposed mandatory cut in electricity demand and the German demand for a mechanism to share the excess supply. Plans for a price cap for Russian gas were met with skepticism and instead a cap for all imported gases was discussed. But it’s unclear how lower prices could be implemented.
Discord among European leaders was compounded by a growing sense of concern about the economic and political fallout from the crisis.
In the Czech Republic, which holds the rotating EU Council Presidency, the justice minister warned of a threat to the political system. In Hungary, Cabinet Minister Gergely Gulyas has raised the specter of mass unemployment as key industrial firms are forced to suspend production or shut down altogether, triggering a domino effect.
The biggest concern in France is a possible new chapter akin to the Gilets Jaunes or Yellow Vests movement that will haunt every government for the next two decades, according to a person familiar with thinking in President Emmanuel Macron’s administration.
Anything to do with purchasing power is highly sensitive in France and it simply cannot afford to be in a situation like the UK or Belgium where energy bills have doubled or tripled, the person said, adding that the government will continue to do everything it can to avert such a scenario.
The energy crisis was building and building before Russian President Vladimir Putin invaded Ukraine earlier this year, prompting successive rounds of international sanctions and an EU decision to end reliance on Russian coal, oil and, most difficult of all, natural gas .
After Nord Stream was shut down, Chancellor Olaf Scholz convened his cabinet early on Saturday to put together a third aid package for households and companies. Negotiations with the coalition partners lasted nearly 20 hours until the early hours of Sunday when they came out with €65 billion worth of aid, including increased subsidies for low-income households and cash payments to students and pensioners.
Scholz also decided to put Germany’s weight behind EU efforts to levy a levy on so-called “windfall profits” from utilities, as rising profits fuel public outrage.
Germany has a good chance of surviving this winter “with the skin of its teeth”. A later poll found voters disagreed with that optimism, saying the measures weren’t enough.
According to Bloomberg Economics, Russia’s decision to completely halt gas flow through Nord Stream will add an additional €50 billion to the eurozone’s gas bill. That’s on top of a €460 billion hit from previous price hikes.
All in all, the bottleneck will weigh on GDP by around 2.2% annually, rising to up to 4% if the winter is unusually cold and European unity collapses. Despite government support, the economy is still headed for a recession by the end of the year, say economists Maeva Cousin, Jamie Rush and Martin Ademmer.
Progress is being made. Before the invasion, Europe depended on Russia for 40% of its gas imports; now pipeline flows account for just 9%, European Commission President Ursula von der Leyen said this week. Record LNG imports from Norway, the US and Qatar have helped fill the gap while LNG infrastructure is rapidly being built.
But it can’t come soon enough. There is talk in Brussels of the danger of social upheavals. National governments have already committed billions of euros and the energy crisis can last for years.
“Burn almost everything,” Poland’s de facto leader Jaroslaw Kaczynski told a meeting with voters last weekend, adding that the country needs to “keep warm”.
A little bit of good news is that gas prices are down this week, extending their decline from August’s records. But they are still eight times the normal for the time of year and extremely volatile. These wild moves are causing huge liquidity problems for utility companies as they are being asked to provide cash to guarantee their operations.
On Sunday, Sweden and Finland announced a $33 billion emergency liquidity facility to shore up struggling utilities and stave off what Finnish Economy Minister Mika Lintila dramatically described as “the ingredients for a Lehman Brothers moment in the energy sector.” designated.
It was the beginning of a cascade of government measures. Finnish energy utility Fortum received EUR 2.35 billion in bridging financing on Tuesday to ensure sufficient liquidity. Switzerland grants Axpo a credit line of up to 4 billion Swiss francs (4.2 billion dollars).
On Thursday, Britain’s Treasury and Bank of England launched a £40 billion ($46 billion) fund for energy traders to help market stability.
The situation on the energy markets has been on the agenda of every meeting of EU heads of state and government in recent weeks. Von der Leyen presented the Commission’s draft contingency plan, but the details will have to await her annual State of the Union address on September 14.
Your credibility depends on success. But for Europe it is existential.
“A few weeks like this and the European economy will just grind to a halt,” said Belgian Prime Minister Alexander De Croo.
Bloomberg’s Piotr Skolimowski, Michael Nienaber, Zoltan Simon, Jasmina Kuzmanovic, Jan Bratanic, Peter Laca, Elena Mazneva, Anna Shiryaevskaya and Simon Kennedy contributed to this report.