ECONOMY

Gas prices risk setting EU’s green ambitions ablaze

Good morning and welcome to Europe Express.

The soaring price of gas and electricity — affecting some EU countries more than others — risks limiting the bloc’s ambitious green policies. The bloc’s energy ministers later today will have their first meeting since the trend started aggravating in recent weeks. We’ll explore what the stakes are and what Brussels can and cannot do in this area.

Meanwhile an EU-US trade and regulatory co-operation meeting is hanging in the balance until later this week when the European Commission is set to decide whether to heed French demands and postpone the meeting. We’ll unpack what the meeting is actually seeking to achieve — more co-ordination on foreign investments (meaning from China), among others.

And hopes for a quick reform of the bloc’s fiscal rules are being dashed — if there were any — with French finance minister Bruno Le Maire saying this will not be a priority for his country’s presidency of the EU in the first half of 2022.

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Hot air over energy crisis

EU energy ministers meet in Slovenia this morning to discuss the continent’s worst energy price crisis in recent years and one that risks poisoning Brussels’ wider green agenda, writes Mehreen Khan in Brussels.

Wholesale natural gas and electricity prices have hit repeated records in the last month, forcing EU governments to prepare billions in emergency aid to help households hit with higher bills.

Spain’s socialist government, which announced a raid on energy companies’ “windfall profits”, now wants Brussels to step in and help co-ordinate national measures.

A position paper from Madrid ahead of today’s meeting calls on the commission to help set up a central EU platform for natural gas to help “facilitate the build-up of strategic gas reserves”. 

“Gas producers are behaving strategically to maximise their profits. We should act together to avoid being at their mercy,” says the paper. 

EU energy commissioner Kadri Simson is expected to respond to those calls today.

Brussels is ready to set out what policies are permitted under EU law, but beyond that, the commission has limited powers to intervene to protect households or contain the crisis which is being felt more severely in some countries than others. 

The bigger risk for the commission is that ministerial hand-wringing over rising prices is emboldening opponents of Brussels’ radical emissions cutting plan, which include drastically increasing the price of CO2. 

Legislators in the European parliament are considering wholesale changes to Brussels’ plan to extend the EU’s Emissions Trading Scheme (ETS) to cars and buildings — a reform that would raise household heating and petrol costs. The knives were out for the ETS extension before the summer with countries such as Spain and France leading the charge against the plans.

The surge in electricity costs could not have come at a more inopportune moment, as Brussels tries to win round sceptics and present a united front at November’s UN COP26 climate summit. But external events can drastically change the tone of the climate change debate in the EU.

When the commission proposed its “Fit for 55” climate strategy in July, the continent was suffering from flash floods in Belgium and Germany and devastating forest fires in Greece. Today’s price crisis has swung the debate back on to the costs, rather than benefits, of the climate transition for politicians who are scrambling to protect households

As Helen Thompson, professor of political economy at the University of Cambridge, writes: “There are no solutions to this crisis, only politically nightmarish choices around hard realities. Making such choices is what a serious energy transition always entailed.”

Budding EU-US co-operation

EU regulators have for long complained and sought to limit the disruptive effects of heavily subsidised foreign companies (read China) undercutting European ones when bidding for contracts or mergers.

The same goes for the US and for the first time, the two sides were planning to sit together next week and think of ways to align their investment screening efforts. That is, until France asked for the meeting to be postponed, writes Javier Espinoza in Brussels.

Europe Express has seen the draft statement that Brussels was preparing for next week’s Trade and Technology Council (TTC) in Pittsburgh, which may or may not be delayed until October to placate the French, who feel betrayed by Washington after it announced a three-way security deal with Australia and the UK that also involved ditching a French submarine agreement.

Still, even if delayed by a few weeks, the TTC isn’t likely to change much from the original plans.

According to the draft statement, it will set up a working group on investment screening “with a focus on sensitive technologies and related sensitive data”. The screening co-ordination is supposed to happen by sharing information on deals. (Our sister newsletter Trade Secrets explains why national security is likely to shape up as a major hurdle for the entire project.)

The EU and US want to co-operate in curbing the trade of sensitive technologies. That includes trade controls on cyber security technologies to prevent their “misuse in ways which might lead to serious violations of human rights”.

Here’s a rundown of both sides main ambitions when they meet:

  • On artificial intelligence: the US and the EU recognise that AI technology must work for humans and not the other way around. Both sides want to work on developing “trustworthy and responsible” AI.

  • On semiconductors: Brussels and Washington want to work together on spotting “gaps” in the semiconductor value chain and to boost their own domestic needs.

  • On global trade: there is mutual willingness to smooth trade between both sides “by actively anticipating and avoiding potential unnecessary non-tariff barriers, while always respecting each side’s regulatory autonomy”.

Chart du jour: Funding freeze threat

Poland and Hungary could face new hurdles to EU funding bids as Brussels prepares to wield new powers to tie spending programmes more closely to human rights standards. The European Commission is discussing internally how to implement a set of new legislative tools that make regional aid grants conditional on compliance with EU fundamental rights. (More here)

No rush on fiscal reforms

France will not make reform of the EU’s fiscal rules a priority for its EU presidency in the first half of next year, Bruno Le Maire told the FT Future of Europe online conference yesterday, writes Ben Hall in London.

“We have to be lucid,” France’s finance minister said. “We will not reach an agreement under our presidency and this is not our purpose.”

Le Maire’s remarks are something of a surprise. Paris had been expected to use its stint in charge of the council of ministers to press for a complete overhaul of the EU’s deficit and debt rules.

The timing was good. The six-month presidency gives France a bully pulpit. A new coalition government would be installed or on its way in Germany. Italy’s Mario Draghi, a strong proponent of changing the rules, would still be in office in Rome. Success would yield political dividends for President Emmanuel Macron before his re-election bid in April.

Le Maire said France was committed to changing the rules because Europe needed to invest more in disruptive technologies and the climate transition. “Are the rules of the Stability and Growth Pact adapted to the new situation we are facing? The response is clearly No.”

The public debt limit of 60 per cent of GDP was “clearly obsolete”, he said, given the explosion in government borrowing during the pandemic. 
Reform of the fiscal rules remains a highly contentious issue for the EU.

Some fiscally hawkish member states are opposed to any change before the debt and deficit limits — suspended last year during the pandemic — are reimposed in 2023. However, support is growing for changing the requirement to reduce public debts over the 60 per cent limit by 1/20th each year. For a country such as Italy with a debt ratio of 160 per cent of GDP, it would be unmanageable.

But Paris now believes it will take time to reach a consensus on reforms and they will then need to be turned into legislation. Le Maire said the eurozone members needed to have a “calm collective discussion”.

EU governments would have to draw up plans mid-next year for fiscal retrenchment in 2023 assuming the existing fiscal rules were fully reapplied. Le Maire’s assertion that the bloc has time for discussion implies he is counting on Brussels to give plenty of leeway.

Paris had other priorities for its presidency, Le Maire said, including agreement on a carbon border adjustment mechanism, enacting a global deal on corporate taxation and fending off “excessive” new capital requirements for EU banks.

What to watch today

  1. Energy and transport ministers meet for a two-day informal council in Slovenia

  2. Poland’s Constitutional Tribunal set to hold a hearing (and possibly a verdict) on the supremacy of EU law

Notable, Quotable

  • Looking at you, Russia: The International Energy Agency has called on Russia to send more gas to Europe to help alleviate the energy crisis, becoming the first major international body to address claims by traders and foreign officials that Moscow has restricted supplies.

  • Russian poisonings: London prosecutors have authorised charges against another Russian man over poisonings in 2018, including conspiracy to murder Sergei Skripal, a former Russian spy who defected to the UK. Also, the Strasbourg-based European Court of Human Rights ruled yesterday Moscow was responsible for the death of Alexander Litvinenko, who died in the UK in 2006 after apparently being poisoned with a radioactive substance.

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Today’s Europe Express team: [email protected], [email protected], [email protected], [email protected]. Follow us on Twitter: @MehreenKhn, @javierespFT, @hallbenjamin, @valentinapop.


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