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In the north-south divide on how to tackle spiralling energy prices, Belgian prime minister Alexander De Croo is smack in the middle. In an interview with the FT, De Croo aligns with what the European Commission is set to suggest later today would be its preferred option — joint purchasing of gas.
I’ll run you through the various options detailed in the draft commission paper and why price caps and the decoupling of electricity from gas prices are listed with considerable caveats.
Meanwhile, in Washington, White House national security adviser Jake Sullivan has signalled that more western sanctions on Russia are to be announced (and the current regime tightened) when US president Joe Biden joins European, Nato and G7 leaders tomorrow in Brussels. Diplomats here (and De Croo), however, don’t expect Europe to follow the US on a full-blown ban on fossil fuel imports from Russia.
De Croo also provided a down-to-earth view on Ukraine’s EU membership aspirations, which were given a boost yesterday when Mario Draghi, Italy’s prime minister, said he would be in favour of the step.
Draghi spoke after Ukraine president Volodymyr Zelensky addressed the Italian parliament with a targeted message about asset seizures. We’ll bring you the latest on the complicated saga of the superyacht believed to belong to Russian president Vladimir Putin.
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Power to the commission
Reading between the lines of the commission’s options paper, the only feasible solution out of the energy price crisis is joint purchasing (combined with what we wrote about yesterday, an obligation to fill up gas storages before the winter).
Options for government intervention on the electricity markets — both on the retail and on the wholesale side — are being explored, but the commission warns that “there is no single easy answer to tackle the high electricity prices given the diversity of situations among member states.”
While some options “are only suitable for specific national contexts”, others “would require an EU legislation and/or EU level common approach to be effective and not harmful for the internal market and supply security. They all carry costs and drawbacks.”
Instead, what the commission suggests is addressing what it describes as the root cause of the rise in electricity prices: the gas market.
“Today’s high electricity price is driven by the high gas price. Volatility is high and not fully linked to fundamentals in the spot market,” the draft reads.
While capping or “modulating” the gas price through regulatory action is an option for leaders to consider at their two-day summit that starts tomorrow, “it should be considered as a last resort, as it entails some drawbacks in terms of security of supply of gas flows.”
On the other hand, replenishing gas storages before the winter and “using the collective leverage of the union to help secure gas imports in the best possible conditions is essential to avoid member states bidding against each other for the same supplies,” the commission writes.
For this purpose, it proposes setting up a task force that would talk to suppliers of liquefied natural gas (LNG) and non-Russian pipeline gas “to secure well-priced LNG and gas imports ahead of next winter.”
A long-term greening strategy is also envisaged: “The EU can better ensure LNG, gas and hydrogen at affordable prices from third countries in the short term, if it engages with those countries on the long term, setting up long-term renewable gas partnerships which would also lay the basis for future hydrogen imports.”
As De Croo pointed out, leaders will probably discuss these options tomorrow — though he played down the potential for a clash between north and south. “I don’t think it is a fight. It’s about listening to the arguments and counterarguments.”
The Belgian liberal politician said he is a “big fan of free markets”. But he noted that in the current situation, where the price of gas is reflecting a shortage that is not there and is contributing to a spike in inflation, “what we see now is a full market failure.”
And just as it was the case in the financial crisis, “when you have a market failure, you should intervene.”
Chart du jour: Impact of war
Coming just two years after the start of the pandemic, Vladimir Putin’s war in Ukraine is yet another economic shock, not just for the region and Europe as a whole, but also for much of the wider world. The OECD estimates this shock will lower world output this year by 1.1 percentage points below what it would otherwise have been. (More here)
Along for the ride
Even as he strongly endorsed Ukrainian membership of the EU yesterday, Italian prime minister Mario Draghi acknowledged that the path the country faces would be a long one, writes Sam Fleming in Brussels.
His Belgian counterpart Alexander De Croo later told the Financial Times that there were indeed no shortcuts around the cumbersome and “heavy” process that countries face when they seek to join the union.
However, alongside that bureaucratic process is also a political track, he added, and there is plenty of scope for this to be beefed up. For example, he floated the idea of Ukrainian membership of the Erasmus student exchange scheme, or indeed the EU’s mobile roaming zone.
Ukraine could join for a segment of European Council meetings, even if it doesn’t get a formal say in decision-making, he suggested, just as the eurogroup has an expanded format for countries that are not part of the single currency.
There are many things that can be done to make it “very, very tangible” that the countries are on the same side, he argued, adding to the political capital the governments need when keeping populations motivated during the lengthy reform process.
This is a key geostrategic moment, De Croo said, and the EU has a choice when it comes to dealing with countries like Ukraine and Moldova. Does the union send the message that they are “part of our family” or does the EU say they can stay where they are, thereby pushing them into the arms of Russia or China?
“The biggest mistake we could make is to slam the door in their face.”
Going after Putin’s (alleged) yacht
Until Vladimir Putin’s invasion of Ukraine, Italy was a favourite playground for the Russian oligarchs who had prospered under his rule and found Italy’s warm, sunny climes the ideal place for their recreation, writes Amy Kazmin in Rome.
Ever since the EU decided to impose sanctions on Russian oligarchs deemed close to Putin, Italy’s Guardia di Finanza, or financial police, has been investigating luxury yachts and properties — and freezing those they can prove belong to oligarchs on the sanctions list.
So far, the GDF has frozen superyachts and private residential compounds worth an estimated €800mn that have belonged to close Putin allies such as businessmen Gennady Timchenko, Alexei Mordashov, Alisher Usmanov, and Andrey Melnichenko.
In a speech to the Italian parliament yesterday, Ukrainian president Volodymyr Zelensky urged the Italian government to step up its efforts to freeze assets, including a $700mn mystery yacht, the Scheherazade, that Russian dissidents claim belongs to Putin himself.
“Don’t be a resort for murderers; block all their real estate, accounts and yachts — from the Scheherezade to the smallest one,” Zelensky told Italian lawmakers.
The Scheherezade, which is currently moored in the Italian port of Marina di Carrara, has six decks, two helicopter landing pads and can reportedly host 18 guests and up to 40 crew.
Supporters of Putin’s most prominent opponent, the jailed anti-corruption activist Alexei Navalny, claim the yacht belongs to Putin or members of his inner circle. But legally, its ownership remains shrouded in mystery: the nominal owner is a shell company, whose true beneficiary has not been identified.
Meanwhile, Zelensky also urged Italian lawmakers to step up the pressure on Russia by imposing a full trade embargo — another big ask for a country that depends heavily on Russian gas to generate electricity and heat households in the winter.
“Support a ban on entering your ports for Russian ships, so that they feel the cost of their aggression,” he said.
What to watch today
European Commission tables energy options paper
Justin Trudeau, Canada’s prime minister, speaks in the European parliament
Energy rations: Germany’s energy infrastructure regulator has asked large industrial groups to outline their energy needs in preparation for rationing next winter, in the event Vladimir Putin shuts off the pipelines.
Brute force: Russia is increasingly relying on unguided bombs and brute force in its assault on Ukraine as it scrambles to regain momentum and runs out of more precise weaponry, according to western defence officials. The change in tactics is expected to steeply increase the toll on Ukrainian civilians.
Wartime tillage: Ireland has launched a €12mn crop cultivation scheme to boost grain production as the war in Ukraine creates a crunch in global supplies. The Irish government is seeking to encourage farmers to plant additional barley, wheat and oats, in a return to a “wartime tillage” programme last used during the second world war.
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Source: Financial Times