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Economy

Household compensations, billions in welfare payments, rising inflation. Olga Smirnova talks about how Europe is preparing for winter

01.11.2022

"Without Russian gas they won't be able to!" - Kremlin propagandists confidently declare. "We'll see," Europe responds as it introduces new sanction packages against Russia and Russian gas.

At the same time, the EU proposes setting a limit on energy procurement prices, using alternative energy sources and putting huge sums in budgets to offset the costs of the energy crisis to the population and businesses.

European media analysts bluntly call the coming winter one of the toughest tests for the EU economies. But not just for the economies.

"EU countries must keep their own economies afloat and support their citizens, but it is just as important to maintain unity," Peter Giesen wrote in the Dutch de Volkskrant. "Europe is embroiled in an economic war with Russia. A divided Europe would mean a victory for Putin in this war."

These considerations are a response to the European Council's decision on 21 October to become a single buyer of Russian gas as of January 2023 and to establish a "dynamic price corridor" (i.e., lower gas prices). It will now be compulsory for each EU country to participate in the purchase of 15% of the total volume of natural gas to build up its natural gas storage capacity in the EU and will already voluntarily be able to participate in 85% of the purchases for current consumption.

Russia, forgetting that it is demand that generates supply, threatens to stop the sale and supply of gas at the new prices, to which Jeffrey Sonnenfeld of the Financial Times replies:

"Europe has obtained enough gas on world markets to fully replace lost supplies from Russia ... But Putin will have to put up with losses from failed supplies to the tune of up to $100 billion annually."

Europe's attempt to dictate prices to the main gas seller is not easy and is exacerbated by OPEC+'s decision to cut oil production by 2,000,000 barrels per day. This threatens to lead to another increase in oil prices and complicates the global (and of course European) heating market situation. High oil prices are also very advantageous for Russia.

According to Ulrich von Schwerin, a columnist for the Swiss Neue Zürcher Zeitung, "Saudi Arabia is doing this [limiting oil production] not only with the US midterm elections weeks away, but also in the midst of a conflict with Russia, for which higher oil prices mean additional billions flowing into the treasury - to be used to finance the war against Ukraine."

Intra-European debate continues over how the proposed oil and gas price and new EU measures against Russia will affect the economies of different countries. Olaf Scholz, the German prime minister, has taken criticism from Greece, Slovakia and Italy for unilaterally trying to cap prices of Russian gas purchases for Germany a month ago, endangering the economies of other EU countries.

A separate story is that of Hungary, whose government pushed for an individual EU decision to retain the previous conditions for buying Russian gas. Prime Minister Viktor Orban has been criticised for his pro-Russian policy. Hungarian columnist Tamas Ronay (Nepszava) asked:

"Was the head of our government right in saying he 'hammered out' guarantees that the EU agreement would not affect Hungary's long-term agreement with Gazprom? What good is that? That we allow the Russians to finance the aggression with Hungarian money?".

The social policies of Germany and the Netherlands have also been criticised: too much compensation for citizens and companies!

For example, Germany is planning to spend up to 200 billion Euros in order to alleviate the impact of the energy crisis on households and businesses. The Netherlands will compensate several tens of thousands of energy-intensive businesses (greenhouses, bakeries etc.), and a further 250,000 consumers (small businesses and small offices) will be able to count on government compensation. Between November and December, each household (house, family, flat) will receive 190 euros in electricity costs.

By the end of this year, the Dutch government will have spent €23.5bn on social support.

In France, fuel and energy conflicts and an inflation rate of 6.2% are complicated by upcoming elections and the French national pastime of strikes. Workers in the nuclear industry, those employed in refining and the fuel depots of TotalEnergies and Esso-ExxonMobil, are demanding higher wages. The government has even been forced to summon striking workers to work.

Of the measures to tackle the energy crisis, France has chosen to partner with its southern neighbours Spain and Portugal to build a new gas pipeline and transport fuel, use green hydrogen and nuclear energy opportunities.

"The south must stick together," the Spanish newspaper El Pais wrote.

The Baltic states have a difficult time: they are young European economies. Whether they have enough fiscal strength to support both business and population is the question.

For example, Latvia guarantees consumers a partial compensation of electric energy costs: after the 160 euro per megawatt-hour mark, the government will reimburse up to 50% of the costs to business. The Latvian Ministry of Economics plans to allocate 257 million euros for this purpose.

"Will this support be enough to prevent companies from closing one after another? - asks Magda Riekstina (Diena newspaper). In the long run, public finance cannot be the only source to keep the companies afloat. There aren’t limitless possibilities for the state to invest in saving businesses".

Each country is looking for its own forms of dialogue with business and support for the population and talks about the need to consume energy wisely. The prospect of so-called 'renewable energy' is also very popular in Europe. Entire businesses and cities are switching to solar and wind power.

Governments are subsidising the installation of solar panels and heat pumps, but they are also asking us to remember to take the most "ordinary" steps: turn out the lights, lower the temperature in the house, close the taps and dress warmer.

Europe is getting ready for winter.

By: Olga Smirnova

Cover photo: Reuters

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