EU faces battle to keep energy prices from tanking economy

BRUSSELS (AP) – European Union leaders enter a crucial phase this week to ensure runaway energy prices and shortages in supplies don’t further weigh on their troubled economies and fuel unrest. At the same time, they must keep all 27 members united in their opposition to Russian President Vladimir Putin.

Ahead of the start of a key summit on Thursday, the European Commission, the bloc’s executive arm, on Tuesday proposed a draft that needs to bridge the gaping divide between those wanting to push through a common gas price cap to keep prices down, and those who believe this would prevent supplies in the first place, further starving industries and businesses.

At the beginning of the weekend, the EU heads of state and government will then look for a compromise in two days of talks, however difficult that may be. As a candy, the European Commission is also proposing to reallocate around €40 billion in budget support to those hardest hit by the crisis.

The President of the European Council and host of the summit, Charles Michel, told the 27 leaders in his letter of invitation that there were three lines of action: reducing demand, ensuring security of supply and containing prices.

“Europe is facing its week of truth,” said Belgian Prime Minister Alexander De Croo. “This week it’s hit or miss.”

It didn’t take long for EU member countries to realize that the bloc’s reliance on Russian energy was a major policy mistake after Putin invaded neighboring Ukraine on February 24 and natural gas prices skyrocketed. Amid sanctions on Russia’s energy sector, the wealthy bloc of 450 million people has since struggled to find ways to keep freezing temperatures from seeping into the homes of the poorest and businesses from collapsing for lack of affordable energy.

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With nationalists and right-wing populists increasingly lamenting the EU’s collective action, the ability to find a common exit strategy from the crisis could have direct implications for the bloc’s future.

“The coming winter could freeze and shake the European feeling – the common sense of belonging, the mutual trust between European countries and the emotional attachment of citizens to the idea of ​​Europe,” said Pawel Zerka of the European Council on Foreign Relations.

Even De Croo, leader of one of the most pro-EU nations, knows there is no time for hesitation. “The time for excuses is over. If the EU is going to make any sense, contain energy prices and better protect families and businesses in this energy war, it must deliver,” he said.

De Croo has been pushing hard in recent weeks to limit the cost of all gas imports into the EU, with other countries including Poland and Greece also increasing pressure on the European Commission.

The panel sought to find common ground between juggernaut Germany, which does not support a full cap on petrol prices, and other countries that believe such a cap will not lead to a reduction in supply in the market.

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The European Commission proposed a compromise that would allow a temporary correction mechanism to kick in in exceptional circumstances and the creation of a new LNG gas index that better reflects the market following the drastic reduction in pipeline gas imports from Russia.

If a spur was needed, the International Energy Agency did so earlier this month, saying that “Europe’s gas security faces unprecedented risk as Russia intensifies its use of natural gas as a political weapon.”

While gas hoarding is in full swing and reliance on Russian supplies has fallen to less than 10 percent, dangers still lurk.

“The possibility of a complete disruption in Russian gas supplies cannot be ruled out before the 2022/23 heating season – when Europe’s gas system is at its most vulnerable,” the IEA said.

And the energy crisis is deeply affecting the fabric of European society. The European trade union group ETUC said inflation-adjusted wages have fallen by up to 9% this year in all EU member states. Meanwhile, corporate profits continued to rise, in some cases in Romania by as much as 6.5 percent, sources said.

“People are missing meals, they have to cut their leisure activities. And families have to make a choice between filling up their car and turning on the heating,” said Left-wing MEP Manon Aubry.

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Against this backdrop of possible social upheaval, EU leaders are poised to agree on a system to pool gas purchases to ensure member states stop bidding against each other to increase reserves and push energy prices overall into the to drive up. Under the Commission’s proposal, natural gas arriving via the entry points from Russia would be exempt from the plan.

In order to be prepared for possible shortages in winter, the EU has already agreed to reduce gas consumption by 15%. The European Commission also proposed on Tuesday to strengthen EU solidarity rules to ensure members can get gas from each other in exchange for compensation in the event of an emergency.

To counteract the risk of business failures and industrial decline, EU countries have independently begun subsidizing vulnerable sectors, at the risk of distorting the market. When a wealthy member country can throw billions of euros at an industry while a poorer one looks on with envy, the concept of the EU’s internal market is in jeopardy.

Germany’s 200 billion euros stand for this Plan to subsidize its industry to survive the next two winters has drawn criticism from many. But it could also benefit everyone in keeping Germany’s industrial wheels turning. “Usually what’s good for Germany is also good for us,” said De Croo.

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