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ENERGY

How European countries are spending billions on easing energy crisis

European governments are announcing emergency measures on a near-weekly basis to protect households and businesses from the energy crisis stemming from Russia's war in Ukraine.

How European countries are spending billions on easing energy crisis
Photo by Arthur Lambillotte on Unsplash

Hundreds of billions of euros and counting have been shelled out since Russia invaded its pro-EU neighbour in late February.

Governments have gone all out: from capping gas and electricity prices to rescuing struggling energy companies and providing direct aid to households to fill up their cars.

The public spending has continued, even though European Union countries had accumulated mountains of new debt to save their economies during the Covid pandemic in 2020.

But some leaders have taken pride at their use of the public purse to battle this new crisis, which has sent inflation soaring, raised the cost of living and sparked fears of recession.

After announcing €14billion in new measures last week, Italian Prime Minister Mario Draghi boasted the latest spending put Italy, “among the countries that have spent the most in Europe”.

The Bruegel institute, a Brussels-based think tank that is tracking energy crisis spending by EU governments, ranks Italy as the second-biggest spender in Europe, after Germany.

READ ALSO How EU countries aim to cut energy bills and avoid blackouts this winter

Rome has allocated €59.2billion since September 2021 to shield households and businesses from the rising energy prices, accounting for 3.3 percent of its gross domestic product.

Germany tops the list with €100.2billion, or 2.8 percent of its GDP, as the country was hit hard by its reliance on Russian gas supplies, which have dwindled in suspected retaliation over Western sanctions against Moscow for the war.

On Wednesday, Germany announced the nationalisation of troubled gas giant Uniper.

France, which shielded consumers from gas and electricity price rises early, ranks third with €53.6billion euros allocated so far, representing 2.2 percent of its GDP.

Spending to continue rising
EU countries have now put up €314billion so far since September 2021, according to Bruegel.

“This number is set to increase as energy prices remain elevated,” Simone Tagliapietra, a senior fellow at Bruegel, told AFP.

The energy bills of a typical European family could reach €500 per month early next year, compared to €160 in 2021, according to US investment bank Goldman Sachs.

The measures to help consumers have ranged from a special tax on excess profits in Italy, to the energy price freeze in France, and subsidies public transport in Germany.

But the spending follows a pandemic response that increased public debt, which in the first quarter accounted for 189 percent of Greece’s GDP, 153 percent in Italy, 127 percent in Portugal, 118 percent in Spain and 114 percent in France.

“Initially designed as a temporary response to what was supposed to be a temporary problem, these measures have ballooned and become structural,” Tagliapietra said.

“This is clearly not sustainable from a public finance perspective. It is important that governments make an effort to focus this action on the most vulnerable households and businesses as much as possible.”

Budget reform
The higher spending comes as borrowing costs are rising. The European Central Bank hiked its rate for the first time in more than a decade in July to combat runaway inflation, which has been fuelled by soaring energy prices.

The yield on 10-year French sovereign bonds reached an eight-year high of 2.5 percent on Tuesday, while Germany now pays 1.8 percent interest after boasting a negative rate at the start of the year.

The rate charged to Italy has quadrupled from one percent earlier this year to four percent now, reviving the spectre of the debt crisis that threatened the eurozone a decade ago.

“It is critical to avoid debt crises that could have large destabilising effects and put the EU itself at risk,” the International Monetary Fund warned in a recent blog calling for reforms to budget rules.

The EU has suspended until 2023 rules that limit the public deficit of countries to three percent of GDP and debt to 60 percent.

The European Commission plans to present next month proposals to reform the 27-nation bloc’s budget rules, which have been shattered by the crises.

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NORD STREAM

Sweden, Denmark and Norway block Nord Stream from examining pipeline 

Nord Stream, the company which owns and operates the gas pipeline hit by suspected sabotage last month, has said it cannot examine the pipeline because it has not been given permission by the Swedish, Danish and Norwegian authorities. 

Sweden, Denmark and Norway block Nord Stream from examining pipeline 

The twin Nord Stream 1 and 2 pipelines have been leaking huge quantities of gas since they were damaged in a series of suspected explosions on September 26th. 

In a statement issued on Tuesday, Nord Stream AG, the company which owns and operates the pipelines, said it had so far been unable to carry out its own inspections. 

“As of today, Nord Stream AG is unable to inspect the damaged sections of the gas pipeline due to the lack of earlier requested necessary permits,” the company, which is 51 percent owned by the Russian gas giant Gazprom, wrote. 

“In particular,” it added, “according to the Swedish authorities, a ban on shipping, anchoring, diving, using of underwater vehicles, geophysical mapping, etc. has been introduced to conduct a state investigation around the damage sites in the Baltic Sea.”

“According to information received from the Danish authorities, the processing time of the Nord Stream AG request for the survey may take more than 20 working days.”

The company said it was also being blocked by Norwegian authorities. 

Nord Stream has chartered “an appropriately equipped” survey vessel in Norway, the company wrote, but the vessel has been denied the “green light from Norwegian Ministry of Foreign Affairs” to depart for the Baltic.

Swedish prosecutors on Monday imposed a ban on all marine traffic, submarines and drones on the entire region around the leaks, with some commentators questioning the legality of the ban.

The prosecutors say they have made the decision because police are carrying out “a crime scene investigation”. 

“The investigation continues, we are in an intensive stage. We have good cooperation with several authorities in the matter. I understand the great public interest, but we are at the beginning of a preliminary investigation and I therefore cannot go into details about which investigative measures we are taking,” prosecutor Mats Ljungqvist said in a press release. 

Sweden’s security police Säpo took over the investigation from the police on September 28th, on the grounds that the suspected crime “could at least partly have been directed at Swedish interests”. 

“It cannot be ruled out that a foreign power lies behind this,” it said in a press release. Ljungqvist leads the Swedish prosecution agency’s National Unit for Security Cases.

In a statement on Sunday, Säpo said they were working “intensively” with the Swedish Coast Guard and the Swedish Armed Forces to investigate who might be responsible for the sabotage.

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