EU at pains to even out support with energy bills

Good morning and welcome to Europe Express.

The EU may be trying to even out the types of support households and businesses across the bloc can get with their energy bills, but governments are pushing back and insisting that the current patchwork of national solutions be kept in place. We’ll bring you the latest changes and figures relating to national schemes, including the UK’s shockingly generous plan.

Moscow meanwhile is sticking to its playbook of holding so-called referendums in occupied territories in Ukraine starting this week, paving the way for their annexation (which would then allow Russia to claim it is under attack) — a move that was promptly criticised by the west.

And in New York, a meeting of EU foreign ministers on the sidelines of the UN General Assembly descended into somewhat of a bunfight over the implementation of Russia sanctions and the wording of a “frequently asked questions” paper.

Low ambition coalition

EU member states seeking greater flexibility in the European Commission’s new energy proposals are beginning to get their way, write Alice Hancock and Sam Fleming in Brussels.

As a reminder, the commission’s package was launched last week. It set out measures aimed at lowering power prices, including windfall taxes to pay for lower household bills, and proposals aimed at reducing electricity consumption at peak hours.

A revised draft of the rules seen by Europe Express gives greater latitude for national measures that are already in place in countries such as Greece, Italy and Spain. It also waters down reporting requirements; for example a clause demanding monthly feedback on electricity consumption reductions has been cut.

Peat (used widely in Finland and Ireland) has been added to the list of sources that will be subject to a revenue cap on non-gas power generators, and the voluntary nature of a 10 per cent cut to electricity demand has been underlined. A 5 per cent cut to peak-hour consumption put forward by the commission has so far remained a compulsory target.

One of the problems that has been confronting the commission is how to account for the plethora of national measures that have already been pushed through by member states aiming to ease the toll of sky-high energy prices.

New analysis being released today by Bruegel, the think-tank, underscores how extensive — and varied — those national measures are.

Bruegel notes, for example, that 10 EU countries have already planned or put in place windfall tax measures, leaving little surprise that member states are pushing for maximum flexibility in the commission’s proposals so that their own national policies can continue.

In the EU, UK and Norway the total amount of announced and allocated funding to shield households and businesses from rising energy prices between September 2021 and September 2022 now stands at roughly half a trillion euros, according to Bruegel’s figures.

That headline figure disguises a varied picture between European states. While some countries, including Ireland, Finland and Sweden, have announced and allocated energy support measures worth a fraction of a per cent of GDP, other nations including Croatia, Greece and Italy have teed up funding worth more than 3 per cent of GDP. (The Netherlands announced new measures yesterday worth €18bn, which on top of existing aid would reach about 2.8 per cent of GDP)

The biggest package by far tracked by Bruegel is that lined up by the UK. Measures already announced plus those being prepared by new prime minister Liz Truss amount to nearly €180bn, or an eye-watering 6.5 per cent of GDP. Truss is meeting EU commission chief Ursula von der Leyen today in New York.

The question is how well European public finances can hold up in the face of such commitments. Simone Tagliapietra, co-author of the Bruegel report, is worried.

“Initially designed as temporary responses to what was supposed to be a temporary problem back in summer 2021, these fiscal measures have now ballooned and became structural,” he said. “This is clearly not sustainable from a public finance perspective.”

Chart du jour: UK first

The Bruegel analysis shows that with its recent pledges, the UK has jumped ahead of EU countries in terms of government support with energy bills. Within the bloc, the think-tank calculated that if loans, bailouts and nationalisations are taken into account, the overall aid stands at nearly €450bn, more than half of the post-pandemic NextGenerationEU programme.

Slacker sanctions?

The EU commission faces a backlash over recently published sanctions guidance that some capitals fear could loosen the restrictions on Russian exports to countries outside the union, write Henry Foy and Sam Fleming in Brussels.

Josep Borrell, the EU’s chief diplomat, flagged concerns raised by member states during a meeting of bloc foreign ministers in New York on Monday evening. The commission was urged to withdraw the guidance pending further deliberations, according to four officials briefed on the meeting.

The official guidance, published on the commission website late on Monday, specified that rules banning the transit of sanctioned Russian goods through EU territory would not apply to fertilisers, cement, wood and coal if intended for final sale to a third country outside the bloc.

The measures were needed “to combat food and energy insecurity around the world” and “in order to avoid any potential negative consequences therefor” in third countries, the document said.

But this interpretation of the rules caught member states unawares, according to two of the officials — particularly eastern member states which border Russia and which would now be under pressure to allow exports of the products. “There were no prior consultations,” said one.

The commission’s exemption for fertilisers was not opposed at Monday’s meeting. But a number of countries, including the hawkish Baltic states, questioned the breadth of exemptions for some of the other products in the commission’s guidance, given it would allow Russia to earn money exporting the goods via the EU.

Brussels has come under increasing pressure to clarify its sanctions regime amid Russian claims that the measures have exacerbated a global food crisis in Africa and other parts of the world by impeding exports of Russian food and fertilisers.

A commission spokesman said that a “targeted clarification” of the rules had been needed to counter an “aggressive, false Russian narrative which is unfortunately gaining hold in parts of the Global South”.

“Especially during a global economic downturn, the EU is fully committed to avoiding that its sanctions unduly impact trade in critical items to third countries around the globe, in particular to the least developed ones,” the commission added.

A spokesperson for Borrell declined to comment.

What to watch today

1. Ukraine President Volodymyr Zelenskyy speaks to the UN general assembly via video link

2. British PM Liz Truss meets European Commission chief Ursula von der Leyen in New York

Notable, Quotable

We as a European public institution should not invest in assets that one day will be seen as stranded assets

• No ‘green’ gas: The European Investment Bank will not fund any gas projects in spite of intense pressure from developing countries to reclassify gas to draw investment, EIB chief Werner Hoyer told the FT in an interview.

• Swedish record: Sweden’s central bank broke its own monetary policy record in three decades yesterday when it increased the key interest rate by 1 percentage point to 1.75 per cent. The move is aimed at staving off inflation, which stood at 9 per cent in August.