Why Germany is asking for energy solidarity from the rest of EU

Good morning and welcome to Europe Express.

Germany, for many years on the receiving end of calls for solidarity with other European states, is facing the grim prospect of gas rationing and a very cold winter if other EU countries don’t help out. I’ll fill you in on what emerged from yesterday’s discussions about contingencies and solidarity agreements.

Meanwhile in the Bavarian Alps, G7 leaders are still trying to hammer out an agreement on oil price caps. We’ll bring you the latest from the Schloss Elmau summit that ends today.

We’ll also hear about what the EU Brexit commissioner (and battery aficionado) agreed with the bloc’s non-EU partner Norway.

Role reversal

Calls for “European solidarity” have been made many times over the past decade, mostly by southern European countries looking for German help in the sovereign debt crisis and in what Macron described as “financial solidarity”, which finally came to fruition in 2020 with EU’s issuance of common debt to stimulate the bloc’s post-pandemic recovery.

Now the roles have reversed and Berlin is the one calling for European solidarity when it comes to the looming gas supply crisis.

German economy minister Robert Habeck yesterday signed a memorandum of understanding with his counterparts from Austria, Hungary, Poland, the Czech Republic and Slovakia for mutual assistance in case of an electricity crisis.

According to the agreement, in case of a crisis, the signatories pledge to exchange information and “offer each other assistance” either bilaterally or as a group, “in order to deliver electricity in a co-ordinated manner”.

“I have been advocating for months that we sign even stronger solidarity agreements,” Habeck said yesterday at an energy ministers’ meeting in Luxembourg, warning that “a supply crisis in one country will lead to an economic crisis in another. We need solidarity.”

Bilateral solidarity agreements on gas supplies, which are binding among EU countries, are still patchy, according to EU energy commissioner Kadri Simson. “Only six are currently in place, and this is not sufficient,” she said.

Twelve countries, including Germany and Italy, have already seen their Russian gas supplies disrupted. “The situation is serious and the crisis might even worsen,” Simson said. “Gas supplies from Russia are at half compared to the same time last year and they might fall even further.”

The European Commission is preparing a series of proposals that will be unveiled in July about “measures to reduce demand preemptively”, for instance by recommending that industrial production or heating is fuelled by other fuels than gas, preferably renewable energy.

“However, in case such measures would not be sufficient and we would still have some gaps to meet, we are working on guidance to help identify critical sectors that if curtailed, would have an impact on European and even global supply chains,” Simson said.

Simson emphasised the role of the commission’s joint purchasing platform for liquefied natural gas (LNG), of which Bulgaria has now become the first beneficiary (Bulgaria was the first country to be cut off Russian gas when it refused to comply with Moscow’s new payment scheme). As for gas storage, the overall EU level has now reached 56 per cent — with ministers yesterday approving the new rules obliging countries to reach 80 per cent before winter.

In a separate statement from the sidelines of the G7 summit in Schloss Elmau, commission chief Ursula von der Leyen and US president Joe Biden said LNG imports from America were on the rise while those from Russia were dwindling. They also said that the US-EU task force on energy security had discussed “options to reduce Europe’s demand for natural gas”, including deploying heat pumps and smart thermostats.

The two said they encouraged EU governments and companies on both sides of the Atlantic to reach a goal of deploying at least 1.5mn energy saving smart thermostats in European households this year.

Chart du jour: Defence spending boost

Nato is to increase its forces on high alert by more than sevenfold to 300,000 in response to Russia’s invasion of Ukraine as part of a sweeping overhaul to better protect its eastern flank.

Sealing the price ceiling

The US and Europe have been talking about ways of putting a ceiling on the price of Russian oil since the spring, and the lengthy nature of the discussions underscores just how complex the project is, write Sam Fleming and Guy Chazan in Schloss Elmau.

G7 officials managed to settle on summit language exploring the idea in principle at meetings in Schloss Elmau, but much technical work still lies ahead if it is ever to become a reality. As US national security adviser Jake Sullivan stressed yesterday, this was not something that could be “pulled off the shelf as a tried and true method”. It was a new concept to deal with a novel challenge, he told reporters.

The goal is fairly clear. As the EU prepares to phase out Russian oil, it is driving up the oil price given there hasn’t been a huge amount of extra production to make up for the losses. So the idea is to permit Russian oil to reach other markets — including lower and middle income countries — but to impose a low enough price ceiling to limit the gains to Vladimir Putin’s coffers.

The way of incentivising oil purchasers such as India to agree to a price cap is by making access to European insurance and reinsurance services on Russian oil cargoes — as well as EU shipping services — conditional on the cargoes being priced at the agreed ceiling. Access to US financial services could also be linked to the cap.

The trick will be to set the oil price at a level that limits Putin’s revenues while not destroying the incentive to sell any oil at all. Russia’s oil customers would need to participate — perhaps lured by the promise of cheaper crude. And insurers would need to be willing to play along with the complex scheme, rather than preferring to sit meekly on the sidelines.

On top of this, the EU would need to attain agreement among all its 27 member states, given sanctions are subject to unanimous approval in the council. The sixth sanctions package was tough enough to land, so it will not necessarily be easy to strike a deal amending some of its provisions.

All this may seem daunting, but so is the prospect of yet more gains in energy prices and inflation rates.

Nordic lights

Brexit seems to haunt Maroš Šefčovič wherever he goes. The Brexit commissioner was in Norway yesterday in his guise as commissioner for Interinstitutional Relations and Foresight, writes Andy Bounds in Brussels.

While the UK parliament debated a law that would override part of the post-Brexit trade deal, the Slovak signed an agreement on electric car batteries with Jan Christian Vestre, Norway’s trade and industry minister.

Oslo will participate in the ministerial meetings of the European Battery Alliance, which Šefčovič founded in 2017 and now has more than 700 industrial and research members.

It will also join and pay money to the European Battery Academy, a network of education institutions launched in February to train people to work in the industry. The European Commission says 800,000 workers will need to be trained, upskilled, or reskilled by 2025.

But there was also the question of post-Brexit trade rules, which could lock Norwegian batteries out of the UK market. A statement after the meeting said: “The two parties will discuss the application of the rules of origin laid down in the EU-UK Trade and Cooperation Agreement for battery packs and battery cells of Norwegian origin installed in electric vehicles produced in and traded between the EU and the UK.”

Under the post-Brexit TCA, to avoid tariffs of 10 per cent from 2027 cars must have 55 per cent UK/EU content and an originating battery pack — defined as either 65 per cent UK/EU content for the cell or 70 per cent for the battery pack.

Norway, which is a member of the single market but not the EU, wants to qualify as an EU producer under that agreement. It would require London and Brussels to agree, which could perhaps turn the issue into a bridge builder between the two sides.

Some 70 per cent of electric vehicle batteries worldwide are made in China. But with global demand expected to grow fivefold, Europe wants to get a piece of the action.

Šefčovič told reporters there were more than 100 industrial projects under way across the EU, including 20 gigafactories.

Brussels hopes Norway can also provide some of the rare minerals needed to produce batteries. The deal comes only months after they agreed to establish an EU-Norwegian Green Alliance covering a range of areas.

What to watch today

1. EU environment ministers in Luxembourg seek political agreement on Fit for 55 package

2. Final day of G7 summit in Schloss Elmau, Germany

3. Nato leaders fly to Madrid for the summit

Notable, Quotable

The number of Russian intelligence officers is particularly high

• Alpine spying: Espionage activity in Switzerland is “booming”, Bern’s spy chiefs have warned, as Russian agents ramp up their work in the neutral country after a wave of expulsions from neighbouring European states.

• Tycoon lawsuit: Ukraine’s richest oligarch, Rinat Akhmetov, has lodged a case against Russia at the European Court of Human Rights over violations of property rights and seizure of assets. Moscow has however withdrawn from the court and said it would no longer recognise its verdicts.

Made in Italy Pre-Summit

Join senior journalists from the Financial Times, Il Sole 24 Ore and Sky TG24 in conversation with Italian government and central bank officials, European Commission representatives and business leaders on July 13. Register for free today at on.ft.com/39TMID4