Russia weighs in as EU scrambles for fixes to energy crisis

Good morning — or as the Russian ambassador to the EU would put it, do svidanya.

EU governments may be looking for joint purchasing and other solutions to the ongoing energy crisis, but in an interview with the FT, Kremlin’s envoy Vladimir Chizov suggests another fix: stop treating Russia as an adversary (just a friendly piece of advice, nothing more).

We will unpack what the European Commission is likely to put forward later this week and why the energy proposals won’t go as far as some southern member states would like.

Also taking place this week: the annual meeting of the IMF, expected to be dominated by divisions between the US and Europe over whether Kristalina Georgieva should stay on as managing director.

In Brexit news, the drumbeat of a possible trade war over the Northern Ireland protocol is getting louder, with things coming to a head as soon as this week.

Following a surprise result in its parliamentary elections over the weekend, the Czech Republic now joins the ranks of Germany and the Netherlands in complex government coalition talks. We’ll look at prime minister Andrej Babis’s miscalculations and what this result means for the central European country.

And as a deadline for the Trump-era tariffs on European steel and aluminium producers approaches, we’re exploring the views of the industry on both sides of the Atlantic on how they see the way forward.

This article is an on-site version of our Europe Express newsletter. Sign up here to get the newsletter sent straight to your inbox every weekday morning

Gas toolbox

Brussels will step up its response to Europe’s energy crisis this week after facing a chorus of calls from governments to help protect consumers from rising electricity prices, writes Mehreen Khan in Brussels.

On Wednesday, the European Commission will publish a long-awaited “toolbox” of measures that national governments can take to protect consumers from record natural gas prices. They will include proposing measures like cutting VAT and levies on electricity bills, providing targeted financial support in the form of cheques to the poorest households, and offering long-term regulated tariffs for the most vulnerable.

The response is unlikely to satisfy demands from countries in the south and east who think the EU needs to revamp its internal energy market to sever the link between the cost of gas and electricity.

But such radical measures do not have overwhelming support among northern countries or commission officials. EU energy commissioner Kadri Simson told the FT last week that the bloc’s energy pricing rules were not responsible for the crisis.

One area where Brussels is ready to come up with creative solutions is joint procurement and storage for natural gas.

The commission will begin to explore ways to set up a platform for buying gas and a strategic reserve for common storage to be tapped in times of peak demand. The idea will be raised at an EU summit in Brussels in two weeks and is likely to generate interest and opposition.

Greece, Spain and France are among countries asking Brussels to step in to regulate the stocks of natural gas. But previous attempts to build such reserves have been beset by technical difficulties and there are big questions over the time and expense involved in setting up shared storage capacity.

The commission’s analysis suggests that the electricity crisis should abate by the early months of 2022. The question of whether a temporary price surge should prompt sweeping changes to the EU’s energy pricing system has yet to be resolved.

Chart du jour: Quiet winds

As if the gas supply crunch weren’t enough bad news, electricity production from wind turbines has fallen by as much as 15 per cent on average in some places this year, according to data compiled by Vortex, an independent weather modelling group. The cause of the trend is uncertain, but one possible explanation is a decrease in average surface wind speed owing to climate change. (More here)

Czech surprise

In the run-up to last weekend’s Czech parliamentary election, most polls suggested that the Ano party of billionaire prime minister Andrej Babis was on course to claim first place, writes James Shotter in Prague.

Instead it was the three-party rightwing Together coalition that emerged victorious, in a result that puts its leader Petr Fiala, a bespectacled political scientist, in pole position to be the country’s next prime minister.

Babis’s ally, president Milos Zeman, could yet — health permitting — give Babis the first shot at forming a new government. But between them, Together and a centrist coalition consisting of the Pirate party and the Mayors and Independents now control 108 of the 200 seats in the Czech parliament, meaning that Babis’s chances of success are very limited.

However, building a five-party coalition is likely to be a time-consuming process, and it could prove unstable.

Part of the reason for Together’s success was a campaign that gathered pace as the election campaign wore on. But analysts say that the party also benefited from miscalculations from Babis.

The prime minister identified the Pirates as his main enemy, and spent much of the campaign firing outlandish salvos in their direction. At one point he claimed that they wanted to force Czechs with big houses to share them with migrants. At another, he claimed they were promoting “ideologically correct ice cream”.

Yet although the Pirates did end up with a poor result, rather than going to Babis, their voters went to Together, said Jiri Pehe, a political analyst who runs New York University’s academic centre in Prague. “If you look at opinion polls in the long run, you can see that Together and PirStan were forecast to win about 42 per cent between them,” he said. “And if you look at their results, they got what polls were predicting six months ago, but rather than Pirates in the lead, it was Together.”

Babis’s other miscalculation, said Pehe, was not doing enough to ensure that the two parties that had propped up his government for the last four years — the Social Democrats and the Communists — made it into parliament again. Both failed to do so, leaving Babis bereft of possible partners.

“Instead of cultivating them, he basically sucked all life out of them and took all of their voters,” said Pehe. “That’s why he still got 27 per cent. But those two parties suffered as a result.”

Steely allies

As the deadline for a deal to end US tariffs on EU steel and aluminium draws closer, the industry has come up with its own solution: gang up together against China, writes Andy Bounds in Brussels.

China accounts for 45 per cent of world steel production and was the only big producer to increase output during 2020, when the pandemic shut down large parts of the global economy.

“In light of the worsening global excess capacity, for the steel sector in general — not only in the US and the EU — it is important to start considering some sort of stabilisation mechanism”, Eurofer, the European industry group, told Europe Express. The group is pushing for the Commission to introduce a monitoring system on Chinese imports to limit volumes. And it wants the US to follow suit.

Industry groups representing aluminium producers on both sides of the Atlantic are already on board.

Gerd Götz, director-general of European Aluminium, said in a statement backed by the Aluminum Association, its US counterpart, that joining forces globally to “effectively tackle China’s unfair trade practices” is the only way forward.

The US tariffs on European steel “are a clear example of how China’s market distortions impact all regions of the world”, Götz said.

The problem for Brussels is that there are business voices shouting just as loudly on the other side, for smoother trade with China, a provider of cheap components and free-spending consumers.

Meanwhile, officials in Brussels and Washington are haggling over how to roll back the US tariffs imposed by former president Donald Trump in 2018.

The EU agreed its own retaliatory tariffs against other US goods but suspended their application until December 1, in a sign of goodwill towards US president Joe Biden. EU officials say a deal needs to happen a month before the deadline to ensure the retaliatory tariffs are not imposed.

Both the European and US aluminium trade groups have made a joint call for a gradual reduction over three years to a complete phaseout of those tariffs.

Valdis Dombrovskis, the EU executive vice-president in charge of trade policy, has hinted he is willing to accept a US proposal for a monitoring system to replace tariffs.

The EU would agree to restricting exports to the US at a certain level. Both sides could claim a victory: tariffs would end but the US is effectively imposing quotas instead without being rude enough to say so publicly. Washington has done similar deals with Brazil and Mexico.

The big question is what the import level would be. Eurofer, which represents the steel industry, wants to get as close to the pre-tariffs level as possible. (Since 2018, annual US finished steel imports from the EU have decreased by more than 6m tonnes to about 14m).

Over at the commission, Dombrovskis is keen to end the spat and could settle for less than the industry wants. However any deal will still need to appease steelmaking countries such as Germany, France and Italy.

What to watch today

  1. IMF and World Bank start annual meetings in Washington

  2. European Court of Justice holds a hearing on Poland and Hungary’s challenge to the rule of law conditionality attached to EU funds

  3. Agriculture and fisheries ministers meet in Luxembourg

. . . and later this week

  1. Austrian parliament holds confidence vote in Kurz government tomorrow

  2. EU-Ukraine summit takes place in Kyiv tomorrow

  3. European Commission puts forward proposals on how to solve the energy crisis on Wednesday

Notable, Quotable

  • Austrian machinations: Chancellor Sebastian Kurz’s resignation over the weekend may prove more a pause than an ending, as he has handpicked a close ally to succeed him and will retain parliamentary immunity.

  • No to Polexit: Tens of thousands of Poles rallied to show their support for EU membership on Sunday evening, days after a ruling by the country’s top court declared parts of the bloc’s founding treaty incompatible with the Polish constitution.

  • Banking rules 2.0: Brussels is preparing a sweeping overhaul of the regime that allows foreign banks to use lightly regulated branches to operate across the EU, in a move that could push up costs for the industry.

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

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