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The most important agenda of the leaders of the European Union, who will meet in Prague tomorrow, is the emergency measures announced yesterday by the European Commission. Commission President Ursula von der Leyen said that a ‘temporary’ ceiling price should be brought to natural gas prices due to the irregularity in the union’s electricity and natural gas markets, and that the union’s energy He said that it should make its purchases not by competing with each other, but through a common EU energy purchasing system.
No final agreement on price ceiling
The package announced by Von der Leyen foresees a ceiling price for natural gas in order to control the increase in electricity prices. Leyen also states that the ‘price ceiling’ application will be the first step of structural reforms in the union’s electricity market. Although many countries support the idea, EU members have not yet reached a consensus on how the ‘price ceiling’ application will work. Some methods have been discussed so far, such as imposing a cap on gas only from Russia, imposing a cap on all wholesale gas sales prices, or a more targeted measure to limit the impact of natural gas costs on electricity prices. Berlin and a few other capitals oppose the ‘price ceiling’.
Reactions to Germany grow
The giant packages announced by some EU members, especially Germany, to protect households and companies, create cracks together because these giant supports are thought to endanger the common market. Hungarian Prime Minister Viktor Orban is one of the loudest critics of Germany’s 200 billion euro energy support package. However, besides Italy’s outgoing Prime Minister Mario Draghi, European Council President Charles Michel, who called for “energy union” in his article to the FT, also thinks that giant support packages will destabilize the common market, without naming Germany. The unofficial EU summit in Prague will be tough for German Chancellor Olaf Scholz.
PMI shows recession deepening in Europe
Euro Private sector activities in the region contracted even more than expected in September, and the service sector continued to contract as the demand for livelihood crises hit. In some countries, the service sector began to contract in September. The final Composite PMI for September, announced by S&P Global, fell to 48.1 in September, a 20-month low. It was expected that the index would decline to 48.2 from 49.8 in August. The organization’s Chief Economist Chris Williamson says PMI data indicates that the Eurozone cannot avoid a recession.
Call for ‘energy union’ from the chairman of the council
European Council President Charles Michel, on the other hand, called for an ‘energy union’ to EU members in his article published in the Financial Times on the day the Commission called on the leaders of the union to take critical steps. Stating that the Union’s energy bill has reached almost 380 billion Euros in the first half of 2022, which is normally a one-year energy bill, Michel says, “Our trade deficit will probably double this year, reaching 5 percent of GDP.” Stating that the Union should reach carbon zero not only because of the climate crisis but also to support its growth strategy, Michel stated that the net zero path is partially based on abundant and affordable natural gas, but this is now “a thing of the past”. “This is why I call for a true energy union. As we saw in the COVID-19 pandemic, no one can cope with a crisis of this magnitude alone,” said Michel, and the four goals of the common energy strategy are as follows:
1- Reducing consumption: Consumption needs to be reduced permanently, not just this winter.
2- Ensuring the security of energy supply: The mistakes of the past should not be repeated, we should never become overly dependent on a single source. This means we better use our joint purchasing power through the common EU energy platform, rather than raising prices by competing for energy with each other.
3- Lowering prices: Reforms are needed in our electricity market. We must invest more in research, innovation and technology. The best way to keep prices down is to take a collective approach.
4- The common market should not be destroyed: The support declared by countries to protect households and companies leads to imbalances and injustices, jeopardizing the dynamism of the common market, our most valuable asset. The global financial crisis enabled the EU to establish a banking union. In the pandemic, we learned to use the resources of our health sector together. Now the same has not happened in the energy sector.