Europe[/B] is preparing for a difficult winter. Apparently things are looking better than some initial forecasts. Gasdeliveries at the beginning of next year are running at 130 euros/megawatt-hour, much higher than pre-war prices in Ukraine, but lower than the worst-case scenarios. Gas storage facilities are at very high occupancy levels. Coarse energy prices have fallen in most markets.
In addition, relatively good weather in several areas has meant that central heating has either come on late or has not yet come on (e.g. in the south). Together with the choice of most governments to go for generous energy bill subsidies, we can understand why it seems as if some countries have so far avoided the worst. For example, Germany in Q3 2022 had better-than-expected results and GDP growth of 0.4% instead of a projected 0.3%.
Does all this mean that Europe is out of the horizon of a major energy and economic crisis?
Europe's many energy problems
First of all, we should not forget that Europe is currently paying for gas at crude prices that are 5-6 times higher than last year.
Nor has it yet been able to find sources that fully cover the quantities of gas it is not receiving (and will continue not to receive from Russia). Hence the insistence on cuts in gas consumption.
At the same time, Europe had all along been particularly turning to natural gas, as it had been seen as the ideal 'transition' fuel (not forgetting that it is a fossil fuel that contributes to climate change). Natural gas was seen as the best way to replace coal plants and in countries like Germany it was also the solution to closing nuclear plants. At the same time, large industrial sectors such as the chemical, ceramics and food industries used natural gas to a large extent.
These mean that even with reduced consumption to cope with the possibility of catastrophic gas shortages, Europe will continue to pay the increased gas bill with no alternatives.
In addition, there are also problems such as the effects of prolonged water shortages that have led to reduced river flows and reduced water volumes in reservoirs. This creates a double problem, which was particularly evident in the summer. On the one hand, hydropower plants cannot operate at full capacity. On the other hand, very low river levels create problems for the full operation of nuclear power plants. This limits the easy resort to increasing energy production from these sources to reduce the use of natural gas.
At the same time, despite the incentives for even more investment in renewables, namely photovoltaics and wind turbines, it should not be forgotten that it will take time before they can contribute to reducing dependence on natural gas. In fact, Europe has seen an increase in imports of photovoltaic panels, but there is a decline in new orders for wind turbines.
All this means that the prospect of Europe being completely cut off from Russian gas is setting the conditions for a more permanent energy crisis in Europe, with deficits that cannot yet be easily covered.
The clash over the cap
At the same time, the cohesion of the EU is once again being tested as "European solidarity" turns out to be rather a euphemism.
This was evident in Germany's rejection, first and foremost, of any thought of issuing Eurobonds to cover increased energy costs.
But it was also evident in the confrontation over the gas cap. The proposed cap of €275/megawatt-hour, which is mainly a German proposal, was met with strong opposition. The reason is that for many European countries this is too high a ceiling, especially since it is very likely that instead of a "ceiling" it will act as a "reference price" (if buyers have officially announced what the maximum price at which they will buy is, sellers have no reason not to sell at that price).
But Germany, on the other hand, fears that if the cap is set lower and there is increased demand in other parts of the world, then it is likely that quantities of gas will be directed to them rather than to Europe, especially if there are higher prices there. This scares Germany as it needs gas for its industry much more than other countries and does not want to be asked to choose between energy production and industrial production.
But this German policy is in conflict with the basic anxiety of countries, especially in the European South, which mainly want to avoid high energy prices, because this would have very high costs, both financial and social, and would therefore prefer a much lower cap and larger subsidy mechanisms.
Fear of debt
For years in Germany and other countries of the European North, two phrases were tantamount to anathema: "debt mutualisation" and "distributive union". The first referred to the refusal to issue "European debt" or for Europe to assume part of the debt of member states. The second referred to resistance to a large distribution of resources from the richest countries to the poorest (let's not forget that there may be countries that are net contributors to the European budget - that is, they give more than they receive - but this is a small part of European GDP).
These resistances continue now. It is no coincidence that the issuing of "European debt" for the Recovery Fund was decided exceptionally and after great difficulties (and with a clear offset from the EU's "own resources").
This also largely comes down to an inequality between countries, which was also evident in the pandemic. Countries in the European North had lower external debt and this allowed them to more easily have generous aid programmes as they had room to issue more debt. In contrast, other countries that can already be considered "over-indebted", such as Italy, do not have the same room to increase their debt to cope with the energy and social crisis and would much prefer more European measures and greater solidarity.
Let's not forget that deficit restrictions may have been temporarily lifted since the pandemic, but there is pressure to gradually recover. This will create additional problems for countries that have tried to cope with the crisis with increased deficits.
All this points to a Europe that will have to deal with serious energy and ultimately economic problems at the expense of time. Problems that do not only concern the war in Ukraine but also the problems in the very constitution of the "European Construction".
Source: in.gr
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