Full stop in Brussels: conditional agreement to lower energy prices

The leaders of the 27 close conclusions that ask to urgently explore ceilings on the price of gas, but leave everything in the hands of ministers once again

European leaders, locked in Brussels on Thursday for almost 12 hours, have concluded an agreement on energy at about 3:00 in the morning. Verbs, in that phrase, are more important than ever, because more than really achieving an agreement, they celebrated it. The delegations had not yet left the building and the messages of disappointment, frustration and weariness multiplied. The 27 managed to close the document of conclusions, but the wording is so complex, so ambiguous, so caught with tweezers that it leaves everything in the hands of the energy ministers, the ambassadors and entrusts it to a negotiation so open that several of the critical points can be eternalized.

The decision was presented by the President of the European Council, Charles Michel, and the President of the Commission, Ursula von der Leyen, stressing that the support of the leaders defined “a solid roadmap” and that it is “an extremely important agreement that demonstrates a strong determination, shared unanimously, to act together at European level to lower prices, ensure supply and reduce demand.” It is true that the conclusions include some of the expected elements, such as joint purchases of gas or the establishment of new benchmarks, as well as a “dynamic corridor” that will put caps on price peaks until a real alternative to FTT, the Dutch market benchmark used in most continental gas transactions, has been consolidated. When it comes to the difficult, the caps on the price of gas for electricity generation, comes the vagueness, the conditionalities and the obstacles, imposed to a large extent by Germany. But the most optimistic cling tightly to the fact that the text continues to talk about those ceilings, that it has not been erased as Berlin wanted at the beginning, and that perhaps in a few weeks, as Macron has said, there will be “concrete decisions and not theoretical proposals”.

In recent years European summits have seen numerous examples of an ‘all against one’. It happened in 2015 with Alexis Tsipras’ Greece. From 2017 onwards with the United Kingdom for Brexit. With Viktor Orban’s Hungary for all sorts of reasons, from the rule of law to energy to sanctions on Russia. But it is unusual, and there are no recognizable codes, for when a European Council becomes something akin to an ‘all against Germany’. In Berlin they are used to carrying the voice, to setting the agenda, and they have no problem being against the majority if it does not suit them. It happened with the Banking Union, with various elements of the packages during the debt crisis, countless dossiers. But in recent weeks the pressure on Chancellor Scholz has multiplied, leaving him increasingly alone.

It is something relatively similar to isolation, because in matters of orthodoxy and market the Netherlands is always on the side of Berlin and because, in reality, among the rest of the EU there is not exactly a common position. But it is true that there is a majority of countries in favor of intervening more deeply in the energy market and acting to decouple the price of gas from electricity and that even the skeptics, Dutch or Finnish, came to the meeting indicating that they are not opposed to the idea, as long as the design is good and there are guarantees.

SOLIDARITY AND TRUST

Germany, which very recently called for the solidarity of all for a uniform reduction in consumption, and then irritated the continent by announcing a plan of 200,000 million euros to help its citizens and businesses, resists and prevents, with its ascendancy over the European Commission, more ambitious or radical measures. But he is losing his footing. Those who called for more audacity rightly feared that today’s understanding was just a trap, that delegating to ministers would be a way of diluting knowing that nothing would happen. “Today we had a good exercise of listening to each other and trusting others. We are all in the same position,” said the Belgian prime minister, one of those who wants speeches. “The human element, trust, is more important than the Council’s conclusions,” he added, noting that political will is actually stronger than what it puts into the documents.

The consensus text mandates the Commission and the Council, that is, the ministers, to “urgently send concrete decisions” on the issues that Brussels put on the table on Tuesday. Including stops. The instructions are to carry out “a time frame to limit the price of gas in electricity generation, including a cost-benefit analysis, without modifying the order of merit and preventing gas consumption from increasing. And addressing the impact on funding and distribution, as well as on flows across EU borders.” That is, almost square the circle or stay at minimums. From the top-level meeting in Prague, just two weeks ago, a very strong message came out, so the feeling, today, is groundhog day and explains the frustration of those who assumed that much more would be achieved.

Germany, like the Commission, fears the risks of intervention, but imposing such strict and at the same time open requirements forces ministers to prolong the fight and negotiation where their bosses have not been able to achieve clarity. It was clear from the outset that the idea was not to solve everything at this Summit, and it has. But at least they are no worse than before. “You have to send a political message,” said the delegations, putting in writing the most ambitious of what they are capable of. Then it would be up to the energy ministers, who will meet on Tuesday and probably again at the end of the month. And to the Commission, which, depending on the language of the consensus conclusions document, could go more or less far. So far Von der Leyen has renounced her role, and instead of proposing to wait for consensus in the Council, a defensive attitude and that on this issue is not giving satisfactory results.

In the previous meeting, in Prague, the message of the leaders seemed very forceful and ambitious, but the proposal that arrived days later was again very short because Von der Leyen continues to verify that her country does not give the arm to twist, and does not dare to go head-on. The German chancellor, trying to gain time and dizzy the partridge, suggested that the meeting be closed leaving things pending, and that another extraordinary European Council be held somewhat later, but the idea did not take hold. Despite this, and anticipating a more than possible scenario, the chancellor insisted at the end of the summit that if the ministers are not able to go to the bottom (and his belongs to another party) another call at the highest level would be necessary.

STRATEGIC ORIENTATION

“The strategic orientation” that the president says she has received after 12 hours of debates is exactly the same as two weeks ago: move forward because there is no unanimity, but there is a majority. Berlin’s position has generated friction with two of its closest allies, France and Italy. There is serious concern in Brussels about divisions on the Franco-German axis, tensions so strong that they have led to the cancellation of the joint meeting of Councils of Ministers scheduled for a few days from now. Both countries are clashing on energy, on interconnections, but also on other deep issues, such as defense or aid to Ukraine. “It is not good for Germany, nor for Europe, that they isolate themselves,” Macron said Thursday.

Likewise, the Italian Prime Minister, Mario Draghi, on the way out and probably before his last European Council, no longer holds back and is saying what he thinks without filters. And making sure everyone knows it outside the room too. The message of the Italian, who in Prague two weeks ago criticized with unusual harshness the inaction of the European Commission, has been that not immediately applying a cap on the price of gas (to which it is imported, but especially for electricity generation) will lead the EU to a recession in a matter of weeks. And that this blockade, hand in hand with the individual plans of those with more fiscal muscle, will cause a painful fragmentation of the single market.

France, Italy, Spain, Poland, Greece or Portugal want gas caps, and if the issue were pushed to the limit it could probably come out by qualified majority. But not everyone agrees on how to implement it and the European Council should have given the Commission a mandate with much clearer instructions to propose specific solutions now, without excuses. Now he will continue to work, but to do such a complicated evaluation ex ante seems a very high obstacle.

COMMON FUNDS

Likewise, there are those who would like a pooled European fund to face the costs of this crisis, perhaps using new mechanisms or imitating those used against the pandemic, such as Sure, with credits to finance the Ertes. Germany, which does not see the idea of common funds well, has not closed the door at all, as can be seen from the words of the chancellor when he left. “We’ll see what’s possible,” he said.

Some were wary of immediately setting dynamic limits until a new benchmark is established (replacing the TTF that is now used and does not, they say, reflect reality). The German thesis, repeated by Scholz a few hours ago in his Parliament, is that a cap can cause supply problems, since suppliers (especially those of liquefied gas, which goes by ship) can look for other buyers. And that the risk is too high.

The problems, precisely, are of his coalition. “It is incredible that an internal problem can cause an external misfortune,” lament diplomatic sources. “Scholz has no strength at home and is losing respect abroad,” they add from another delegation. He himself acknowledged in the room that he has room to discuss these more aggressive proposals, the caps, but right now, he argued, he has no mandate to agree on anything. “Russian gas has gone from being a bargain and a blessing for Germany to a curse for all of Europe. Everyone sees this as a failure of German politicians,” Polish Prime Minister Mateusz Morawiecki said loudly, according to the FT.

“States must have a common spending mechanism to uphold a level playing field. It is not a question of solidarity but to safeguard the internal market,” Draghi said at the meeting, according to his diplomats. On Wednesday, in the European Parliament, President Von der Leyen acknowledged that the Iberian mechanism that caps gas was working and that “it was worth exploring its use throughout the Union.” Explore, still, because his team has doubts about whether that would lead to greater consumption, if it can generate an internal market problem because subsidized energy would run throughout the continent and because they believe that it would benefit both of them more, accelerating precisely that fragmentation.

Source: El Mundo