As in the times of the financial crisis, when the response of the financial markets, as detested as they were respected, gave the measure of whether the agreements reached at dawn were going to solve the problems or aggravate them, the European leaders woke up yesterday in Brussels after a negotiation marathon awaiting the price of gas. The oracle spoke and the drop in the price of electricity, 7% in the early hours of the morning, gave them the relief they craved.
“The agreement has had immediate effect, in the last few hours we have been able to verify a significant drop in prices”, celebrated the President of the European Council, Charles Michel, at the end of the second day of work at the summit of leaders that has brought positions among the Twenty-seven and mark the terms of a “European temporary framework” that allows adopting “with the utmost urgency” measures to limit “episodes of excessive gas prices”. Estonian Prime Minister Kaja Kallas also expressed her relief at the effect falling prices have on the economy as a whole: “When prices go up, they pull on inflation and hurt the economy as a whole,” she said. . But, as European diplomatic sources said yesterday, when a year ago they began to talk about the problem “the price of a megawatt was 80 euros”, compared to 114 yesterday.
The drop in the last 24 hours is, however, in line with the trend that has been observed since the end of August, when the price of gas reached almost 350 euros per megawatt hour, and which has led to a drop of almost 70% in the price. since then. This change explains that this week for the first time it has been below the range that allows the Iberian exception to be activated.
Although the current levels are considered too high, the European Commission affirms that the drop in recent days reflects that the markets have understood the messages sent from the European Union about their willingness to act together to limit price increases. “You can see that prices go up when President Putin says something, but when we firmly fight against this by diversifying, filling reserves or saving energy, the market calms down again and prices go down again,” said Ursula von der Leyen.
The agreement reached the night before last was the result of eleven hours of negotiations in which the German chancellor, Olaf Scholz, found himself in an absolutely unusual situation of isolation, although neither comfortable for the rest of the European partners, reluctant to approve without the support of Berlin a new package of measures to lower energy prices. The Netherlands and the Nordic countries also had reservations about the idea of ??capping the price of gas or temporarily decoupling its impact from that of electricity, but all had said they were willing to explore it if the European Commission made a proposal.
Michel set out to break the dynamic that had set in over the last few days in Brussels, which led Scholz to arrive at the summit in such a unique situation of solitude, allowing everyone present to speak to show that agreement was possible, that the positions They weren’t as far apart as everyone thought.
The compromise was finally possible based on several elements: the adoption of a dynamic range for the price of gas to limit its volatility instead of a fixed cap unilaterally imposed on suppliers as initially proposed and requested by twenty countries; the promotion of joint purchases through the creation of European consortiums for next winter, the examination of the Europeanization of the Iberian mechanism and the promise to mobilize the necessary financial resources so that all countries, rich or poor, have room to invest and support their homes and businesses.
“The European Council has agreed that, given the current crisis, efforts to reduce demand, ensure security of supply, avoid rationing and lower energy prices for households and businesses in throughout the Union, and that the integrity of the single market must be preserved”, affirm the conclusions on energy agreed by the leaders.
The matter is now in the hands of the EU27 energy ministers and the European Commission. And, as the cryptic sentence in point 20 of the conclusions points out, “the European Council is still seized of this matter”. In other words, the European leaders will have the last word if they perceive that the technical work is advancing in a different direction than that agreed the night before last in Brussels.
Depending on the effects that, in the coming months, the measures that the EU is preparing to adopt in the coming days will have, there will be more or less arguments to demand the implementation of a new budgetary capacity, a new fund financed from of the issuance of common debt as was done during the pandemic, as Mario Draghi vehemently claimed in what was his last summit as Prime Minister of Italy.
