PALE, WITH deep circles under their eyes, the leaders of Germany’s coalition government emerged on the morning of Sunday September 4th looking as if they had partied all night. In fact, they had just spent 22 hours negotiating an agreement on an energy-bill relief package. The package will cost at least €65bn ($64.7bn), equivalent to 1.8% of the country’s gdp. It is supposed to preserve social peace during a winter that will clobber Germans with sky-high prices for natural gas and everything else. “You’ll never walk alone,” promised Olaf Scholz, the German chancellor, who has become fond of quoting the song by Gerry & The Pacemakers in recent months.
In addition to Germany, Sweden and the Czech Republic unveiled new measures this week to help citizens and businesses cope with soaring energy prices. Europe’s bills have been rising ever since February, when the eu imposed sanctions on Russia over its invasion of Ukraine and Russia responded by throttling supplies. The latest jump came after the decision on September 2nd by the g7, a club of big Western economies, to impose a cap on the price of Russian oil. The following day Russia announced it would indefinitely continue its cut-off of gas deliveries through Nord Stream 1, its main pipeline to Germany, supposedly for technical reasons. On the morning of September 5th the price of gas on Amsterdam’s ttf exchange leapt some 30%. It now stands at about ten times the average price in September 2021.
Russia’s weaponisation of energy supplies is testing Europe’s financial resources. Governments are struggling to balance relief for citizens and firms with the need to let energy prices rise in order to discourage overuse. They must also avoid getting into bidding wars with each other. On September 9th EU energy ministers will meet in Brussels to discuss collective measures, such as common caps on gas or electricity prices, to solve problems they cannot tackle individually. If they fail, European voters may demand their governments drop sanctions on Russia in the hope of getting cheaper energy supplies—or make way for new leaders who will.
Germany, the continent’s largest economy, has implemented the largest energy-bill-relief packages. The new one is its third and biggest. (The two previous ones together amounted to €30bn.) It includes tax breaks for energy-intensive industries, one-off payments of €200 for students and €300 for pensioners, subsidised tickets for public transport and higher monthly child benefits. An electricity-price brake will cap the price of a basic minimum amount of electricity for households and small businesses. Basic welfare provisions and child benefits will rise, as will rent subsidies for the needy.
The subsidies will be welcome to cash-strapped citizens, but they will also fuel inflation, which was a hefty 8.8% year-on-year in August. Mr Scholz plans to finance them in part by bringing forward the implementation of a planned 15% global minimum corporate tax. He wants to pay for the electricity-price brake by imposing a cap on profits of firms that generate electricity from wind, biomass, solar and nuclear energy. They are making excessive profits, he argues, because the price of natural gas determines that of electricity.
France has taken a somewhat different approach. In early August its parliament passed a relief package worth €64bn. President Emmanuel Macron is offering generalised rather than targeted subsidies, and capping price hikes rather than compensating those squeezed by them. France has kept gas prices frozen until at least the end of 2022, and capped the rise in electricity prices to 4%. From September 1st it raised its petrol price subsidy to 30 cents per litre; official government signs taped to gas pumps remind consumers of this generosity. There are also some targeted measures for the low-paid and students.
These measures are largely deficit-financed. France expects its government budget deficit to remain at 5% in 2023, the same as this year, and three points above that in Germany. Meanwhile the French government is fully nationalising edf, the national energy giant in which it already holds an 84% stake, to make it easier to force the company to absorb the cost of price caps. France is usually a net exporter of electricity, but over half of its 56 nuclear-energy reactors are currently down for repairs. So the country is having to pay high wholesale prices to supply its needs.
Governments fear the political effects of high energy prices, but trying to cushion citizens from them is no guarantee either. In Italy, efforts to offset the cost-of-living crisis helped bring down Mario Draghi, the former prime minister. In June Mr Draghi’s government drew up an energy-cost relief bill which sparked the ire of one of his coalition partners, the anti-establishment Five Star Movement (m5s): it included provisions for a waste-to-energy plant they considered unecological. That set off a chain of events leading to Mr Draghi’s resignation and the calling of an early election on September 25th.
The volume of assistance Italy has provided is impressive. Mr Draghi’s government shelled out €52bn, according to Daniele Franco, the finance minister. Officials say the top priority has been to cap the fuel bills of the poorest, with the next in line being energy-intensive businesses. Because of inflation, higher-than-expected economic growth and tax revenues, the Italian treasury has not yet been forced to borrow more money than expected. A further package—the seventh so far—is expected to be unveiled this week.
Yet Italy is also among the countries where high energy prices are most likely to sap Europe’s solidarity against Russia. On September 4th Matteo Salvini, leader of the hard-right opposition Northern League, called for energy sanctions against Russia to be reconsidered. The right is the overwhelming favourite in the elections, and the League is likely to be part of the governing coalition.
Indeed, even in central and eastern Europe, where support for Ukraine has been strongest, high energy prices threaten to undermine the consensus for sanctions. In Prague on September 3rd, 70,000 people joined a rally organised by far-right and far-left groups to denounce aid to Ukraine and demand more state help paying their bills. The previous day the Czech government had withstood a no-confidence vote over its package of energy subsidies, pension and salary increases and energy subsidies, which amount to $7.2bn, about 3% of gdp. The coalition government of centrists and liberals is reliably anti-Russian. But the opposition, led by a populist billionaire and former prime minister who has clashed with the eu over corruption charges, is less so.
In Bulgaria, the eu’s firm line against Russia may already have snapped. A liberal coalition government fell in June, and the caretaker government has suggested it will negotiate with Gazprom, the Russian state gas firm, to resume supplies, which were cut off in April. The new energy minister is a little-known figure whose curriculum vitae includes a stint working on the restructuring of the Russian daughter company of an Italian energy firm. He quickly cancelled deliveries of American liquefied natural gas arranged by his predecessor, and is now negotiating for Turkish or Azerbaijani supplies.
The threat of eu member countries being picked off one by one makes the discussions in Brussels on September 9th all the more important. The Czech government, which holds the eu’s rotating presidency, is compiling a list of proposals from member states. According to a copy of a Czech discussion document seen by Politico, a news website, these include capping the price of Russian gas much as the g7 plans to cap the price of its oil.
The discussions will no doubt be just as contentious as those within countries have been. In France, Mr Macron has faced criticism because measures such as the petrol-price rebates can benefit the rich more than the poor. On September 5th, the French president promised future relief measures would be better targeted. In Germany, industrialists grumble that the government is helping private households more than businesses. Siegfried Russwurm, the head of the bdi, Germany’s main industry lobby, called the latest package “disappointing and not specific”, saying exploding energy prices are putting companies’ survival at stake.
