Dangerous transfer: why the IMF is urging Europe to shift the cost of electricity to ordinary consumers

Dangerous transfer: why the IMF is urging Europe to shift the cost of electricity to ordinary consumers

The European Union has finally approved plans to reduce gas consumption by 15% by the end of March 2023. The measure is voluntary, but if necessary, it will become mandatory for all countries of the association. However, as the economic situation worsens and fuel prices rise, not all EU countries will be ready to show solidarity, experts say. Against the backdrop of a decrease in Russian gas supplies, the cost of electricity in Europe increased several times over the year. The authorities of the countries of the region are trying to artificially limit prices, provide preferential loans to businesses and subsidies to consumers. At the same time, experts from the International Monetary Fund consider such a policy inappropriate from a budgetary point of view and urge the EU to shift government costs onto the shoulders of ordinary citizens.

On Friday, August 5, the EU countries finally approved the decision to reduce gas consumption by 15% until the end of March 2023. The relevant material is published on the website of the Council of the EU.

“The goal of reducing gas use is to save money ahead of winter in order to prepare for possible disruptions in gas supplies from Russia,” the report says.

It is noted that the initiative provides for exceptions for some EU countries, and the reduction in fuel consumption itself is voluntary. At the same time, in the event of an acute shortage of it, a regime of “all-Union alarm” can be declared, and then a reduction in demand will become mandatory for all participants in the association.

As European Commission President Ursula von der Leyen said earlier, if necessary, EU countries should show solidarity and be ready to reduce gas consumption or share fuel with each other. However, experts doubt the success of this initiative.

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For example, the Polish authorities have already declared their unwillingness to share fuel with neighbors. As the situation on the EU gas market deteriorates further, more and more countries of the association will begin to follow a similar strategy, says Andrey Loboda, economist, director of external relations at BitRiver.

“The political and economic confrontation with Russia has played a cruel joke on Europe. Against the backdrop of rising fuel prices and gradual impoverishment, each EU country will urgently help itself out of the crisis. With the onset of cold weather, the rhetoric of many countries may change, and they will act without regard to Brussels, ”the source said.

Waiting for winter

Gas on the European market is still trading above $2,000 per 1,000 cubic meters. m. Although the quotes have somewhat moved away from the March and July records, prices are still ten times higher than the values ​​of a year and a half ago.

In the near future, the cost of raw materials will continue to remain at elevated levels due to the growing concerns of the EU about a possible shortage of gas for the heating season. Alexey Fedorov, an analyst at the TeleTrade information and analytical center, shared this opinion in an interview with RT.

According to the latest data from the European Gas Infrastructure Association, underground gas storage facilities (UGS) in the EU countries are cumulatively filled by 70.9%. The European Parliament expects to bring the figure to at least 80% by November 1. However, according to Fedorov, even if this goal is achieved, the fuel may still not be enough to survive the winter normally.

“The problem is that 80-90% occupancy of UGS facilities by October-November gives Europe only three months of quiet life, while the heating season lasts as much as six — from October 1 to March 31. That is, even if the EU fulfills the standard for filling storage facilities, the region will have a hard time without the required volume of Russian gas supplies, ”the specialist explained.

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Since the beginning of the summer, the pumping of gas from Russia to the EU through the Nord Stream pipeline has fallen by almost five times, to 33 million cubic meters. m per day (about 20% of the total capacity of the highway). The reason was delays with the return of the Siemens gas turbine engine to Gazprom after repair and the inability to send other units for maintenance. At the same time, due to restrictions from Poland, the European Union stopped receiving gas through the Yamal-Europe pipeline, and Ukraine halved the transit of Russian raw materials through its territory.

“Today, only the Turkish Stream is operating at full capacity, but it is designed for deliveries mainly to Eastern Europe. Liquefied natural gas from other suppliers is not enough for everyone, and the extraction of alternative energy sources is difficult due to the heat. Hydro and nuclear power plants need water, and rivers in Europe are now drying up, ”Igor Yushkov, a leading analyst at the National Energy Security Fund, told RT.

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In his opinion, the current gas deficit in the EU is largely due to insufficient financing of the industry. In the past few years, Europe has been “at the forefront of the green trend” and has steadily reduced investment in the development of traditional energy. This, in turn, laid the foundation for the current energy crisis in the region, Yushkov said.

“The authorities have been actively talking about the energy transition and have argued that gas will fall in price as energy from renewable sources increases. Even the financial and credit system in the EU was built in such a way that it was difficult to get loans for gas projects, and the interest on them was noticeably higher than for green initiatives,” Yushkov recalled.

According to the expert, a global agreement between Russia and Europe in the energy sector, together with the launch of Nord Stream 2, could partially alleviate the situation. However, the leadership of the European Union is not yet ready to consider such a scenario, and the lack of funding for the industry would still not allow solving all the problems of the EU, Yushkov is sure.

Between the budget and the electorate

Against the background of a noticeable increase in the cost of gas, European countries are faced with a rush increase in the cost of electricity. For example, in Germany, Belgium, the Netherlands, Latvia and Lithuania over the past year, prices have increased by about four times – from € 91-98 to € 369-380 per 1 MWh, and in France – almost five times, from € 86 up to €411 per 1 MWh, according to Nord Pool data.

As an alternative to gas, European countries are beginning to use fuel oil more actively and, at the same time, are resuming the operation of coal-fired power plants that were previously decommissioned due to the environmental agenda. Along with this, the EU authorities are introducing tough measures to save energy, including turning off the lighting of buildings and hot water in offices, as well as lowering the temperature in the premises.

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In addition, the leadership of the European Union is trying to contain the further rise in the cost of energy with the help of subsidies, tax cuts, as well as artificial price regulation. At the same time, experts from the International Monetary Fund consider such measures inappropriate.

According to the assessment of the organization, the initiatives of the European authorities to support citizens and businesses do not lead to a reduction in energy consumption, which is why the cost of fuel is still high. The fund’s economists urge Europe to help only the poorest citizens, and to shift government spending on electricity to the shoulders of other consumers.

“Governments cannot prevent a decline in real national income due to a shock in trade (in energy resources. — RT). They should allow the transfer of the consequences of massive increases in fuel costs to end consumers to stimulate energy conservation and the shift away from fossil fuels,” the IMF study says.

As fund analysts explain, with the current measures to contain fuel prices, the amount of additional costs in many EU countries could exceed 1.5% of GDP in 2022. Under these conditions, the budgetary possibilities of the states of the region are becoming increasingly limited. Meanwhile, supporting only the poorest segments of the population will cost Europe only 0.4% of GDP, IMF economists have calculated.

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“European state banks are now actively issuing preferential loans to energy companies. There is also subsidizing consumer spending. As a result, Europe floods all its problems with budgetary money. The IMF asks not to do this, since the budget is not unlimited. At the same time, the EU authorities do not want to sharply increase energy prices for ordinary consumers, as this could lead to social protests,” Igor Yushkov believes.

A similar point of view is shared by Alexei Fedorov. According to him, in an attempt not to quarrel with the electorate, the governments of a number of EU countries are trying to protect ordinary citizens from price increases as much as possible, but they are already starting to exceed the allowable limit of financial possibilities. The International Monetary Fund is asking the EU to return “within reasonable limits”, but the EU leadership is unlikely to heed this advice, the analyst said.

“The problem is that, having politicized the supply of gas and other energy resources from Russia, the EU countries are now unable to solve energy problems. To do this, they would have to retreat and, in their understanding, lose the geopolitical battle. Therefore, the situation in the European economies will inevitably worsen until the current authorities are shown the door or they finally return to the economic basis of decision-making, ”concluded Fedorov.

Source: russian.rt.com

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