The challenge will be to deliver the hard truth that there’s no pain-free option while sending a confident signal to commodity markets and helping restore trust between the EU’s 450 million inhabitants and their leaders as energy scarcity and social unrest loom.
The latest Eurobarometer survey conducted in June-July shows broad agreement with support for Ukraine and sanctions against Russia. But that support has ticked down since April-May as power prices skyrocketed.
This does not bode well for a winter that will require solidarity in curtailing energy use to avoid blackouts, and among countries in keeping a united stance against Vladimir Putin.
European Commission plans, reported by Bloomberg News, include a power-price cap and windfall tax. Those are worthy signs of action. Last week’s meeting of EU energy ministers, while typically a cacophony of disagreements, featured widespread recognition that intervention to curb the impact of soaring prices was needed. Gas storage levels at over 80% offer at least some optimism.
However, this is no time for self-congratulation or talk of “sovereignty” when policy details have yet to be thrashed out and when Putin is able to twist the knife by shutting off gas flows through the Nord Stream pipeline. That would raise the euro area’s gas bill by about 50 billion euros ($51 billion), on top of 460 billion euros from earlier price hikes, according to Bloomberg Economics — or 2.2% of annual gross domestic product.
Von der Leyen’s message to EU citizens should be clear that this winter will require sacrifice, with a potential need to curb power demand by 10%-15%, but also that the union’s member states will do everything to share the cost and maximize supply from non-Russian sources.
Such a mix of carrot and stick would ideally follow the “grand bargain” previously laid out by Brussels-based think tank Bruegel, with countries pooling resources to support vulnerable households.
This would also mean reversing national policies that once proved popular. For example, German nuclear power plants and Dutch natural gas fields, earmarked for closure, should stay open. Every last source of energy counts if factories are at risk of closing while households shiver through the winter.
And given the need to ramp up financial assistance to the needy, there should be more joint borrowing at the EU level. This Covid-era policy has struggled to gain renewed traction in the face of German reticence, but more fiscal solidarity looks like a fair exchange if Berlin expects EU partners to help wean it off Russian gas. AXA IM economist Gilles Moec notes that a recent German proposal on reforming EU fiscal rules makes no mention of this crucial point, which he says could be optimistically interpreted as a first step to getting there.
Taking such decisions requires strong political leadership at a time when heavyweight voices like Angela Merkel or Mario Draghi are gone and the likes of Olaf Scholz and Emmanuel Macron are struggling to be heard. Von der Leyen has a chance to fill the gap; she shouldn’t shy away from declaring a pan-EU “emergency” requiring a wartime economy.
Done right, worst-case scenarios might be avoided and solidarity strengthened in a way that reassures investors on the EU’s long-term viability. Done wrong, the recession could turn very ugly, with Germany taking a GDP hit of almost 7%.
It is a cliche to say Europe has been forged in crises. But this looks like a clear test: an energy crisis broader than the 1970s oil shock hitting a union that didn’t exist on this scale back then. “We can’t avoid the cost of this shock, but we can choose how to distribute it,” says Xavier Chapard, a strategist at Banque Postale Asset Management.
The decision is whether Europeans walk with their leaders, in Kissinger parlance, or give them their marching orders.
More From Bloomberg Opinion:
• Putin Will Love Europe’s ‘Hot Autumn’ of Protests: Andreas Kluth
• Truss Goes the Wrong Way on UK Energy Bailout: Javier Blas
• Macron and Scholz Need a Grand Bargain on Energy: Lionel Laurent
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Lionel Laurent is a Bloomberg Opinion columnist covering digital currencies, the European Union and France. Previously, he was a reporter for Reuters and Forbes.
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