Europe’s Energy Crunch Could Spark Flashbacks to the Eurozone Crisis

Meaningful reform in the European Union has historically taken a crisis, and this winter seems ripe for energy policy. As with the euro crisis a decade ago, though, a quick political compromise could risk leaving the job half done.

The EU’s energy ministers are holding an emergency meeting Friday to agree on ways to calm the storm of gas shortages, nuclear outages and drought hitting European energy markets. The benchmark price for the region’s swing fuel—liquefied natural gas—has fallen this month in response to proposals for coordinated action, but remains almost four times its level a year ago and eight times the U.S. equivalent. This and the knock-on impact on power prices are prompting businesses to shutter production and citizens to protest in the street.

There is considerable disagreement among politicians in different countries about how best to address what is a heartland issue. While the pressure should help reach some kind of deal, it also raises the risk of missteps.

The EU in May proposed plans to reduce its reliance on Russian fuel, but these will take a few years to really deliver. Something needs to be done now to reduce electricity prices and improve the certainty of supply. On Wednesday, Brussels outlined its starting point: reduce peak power demand; cap the wholesale price of low-marginal-cost power sources and Russian gas; create a windfall tax on oil and gas producers; and offer energy companies state guarantees to help meet margin calls on power trades.

Capping the gas price is highly contentious. Debate centers on whether to cap only Russian gas, all pipeline gas or all imports including LNG from producers further afield, such as the U.S. Some EU countries want to go even further and immediately reform the structure of power markets to sever the link between gas and power prices.


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Power-market reform is likely necessary in the long run, but embarking on such a complex task to fix this winter’s crunch is risky. The EU’s firefighting response to the eurozone crisis over a decade ago, which failed to deliver a true banking union, is an awkward precedent.

Meanwhile, the U.K.’s latest energy plan highlights the risk that politically easier solutions can have unintended consequences. Rushed through by Britain’s new prime minister, a cap at the retail level on power bills for households and businesses made no mention of measures to cut usage. That could be an expensive oversight: Without a price signal, users will have little incentive to cut their demand, causing costs to spiral and raising the chance of shortages.

Still, reaching an EU-level energy agreement is of “existential importance” to the bloc, says Brussels think tank Bruegel. It estimates that EU governments have already spent more than €230 billion, equivalent to $232 billion, on a pick-and-mix of local measures aimed at bringing power prices down, including price caps and tax cuts. A paper published this week argues that coordinated action to strengthen Europe’s relatively interconnected power markets would be cheaper than national measures, and would also improve overall energy security and avoid delaying decarbonization. 

But EU-level action requires national leaders to trust their neighbors and do some things that, while good for the bloc overall, may be unpopular at home—such as keeping Germany’s nuclear power plants open or pumping more gas from Groningen in the Netherlands. Lights may need to go out before European leaders reach the full crisis mode necessary for sweeping changes, and developing good long-term policy during a blackout will be tough.

Western leaders are preparing for the possibility that Russian natural gas flows through the key Nord Stream pipeline may never return to full levels. WSJ’s Shelby Holliday explains what an energy crisis could look like in Europe, and how it might ripple through the world. Illustration: David Fang

Write to Rochelle Toplensky at

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