EU’s long road to capping energy prices

Good morning and welcome to Europe Express.

The dust has only just settled after the leaders’ agreement on bringing energy prices down, but myriad questions remain. One of the most important is the shape of the proposed emergency price cap — and whether it will take another emergency EU summit to get it through.

We’ll also hear from the head of BusinessEurope, who is warning that more companies are looking at moving operations abroad, where energy costs are lower.

In London, former PM Boris Johnson dropped out of the leadership race last night, leaving his ex-chancellor Rishi Sunak as the clear frontrunner to become prime minister.

In Rome, the new government led by far-right leader Giorgia Meloni was sworn in over the weekend, including Forza Italia’s Antonio Tajani as foreign minister. Tajani’s first call was to his Ukrainian counterpart Dmytro Kuleba, he tweeted, as he sought to reassure Kyiv after his boss Silvio Berlusconi’s outrageous statements. (Read more here about Silvio’s disruptive influence on the ruling coalition.)

Not seizing the moment

In their summit conclusions on Friday, EU leaders agreed that they must remain “seized” of the European Commission’s progress on efforts to quell the energy crisis. But it was not the carpe diem sense of the word they had in mind, write Alice Hancock, Henry Foy and Sam Fleming in Brussels.

The package the commission will now work on includes the measure of capping gas prices if they reach “excessive” levels — something Germany tried in vain to scrap altogether.

Do not expect any speedy progress, however — despite Italy’s calls for urgent action in what was PM Mario Draghi’s swansong before passing the baton to Giorgia Meloni. Tomorrow’s meeting of energy ministers in Luxembourg has just a lunch discussion scheduled on the topic, with negotiations likely to wait until November 18 before the measures get signed off, if agreed.

Energy ministers will instead be focusing on a directive to improve the energy performance of buildings and gas legislation of a different sort: the development of cleaner gasses such as hydrogen.

It is also not clear that energy ministers will be able to rush the emergency gas price cap through. The formulation in Friday’s summit conclusions that leaders will be “seized of the matter” was designed as a sop to Germany, given its mixed feelings about the price capping idea.

Scholz said on Friday that he believed the 27 leaders had made a pact not to use qualified majority voting (QMV) to agree any detailed legislation to support the broad decisions taken at the council.

“We agreed that we wanted to act in mutual agreement so that no single country ought to be outvoted,” Scholz told reporters. “So the matter might be brought to the attention of the Council if needs be.”

Ironically, Scholz is a big promoter of QMV in other areas, such as taxation and foreign affairs, where sanctions can be — and have been — held up by one country’s veto (Hungary). But QMV sceptics point to the poisonous record of this type of decision making, particularly after 2015 when Hungary and several other central and eastern European countries were outvoted on migration and spent many years fighting that decision in courts.

A senior diplomat from a pro-price cap country said that Scholz had pushed for the matter to return to leaders as an “emergency brake” given that decisions at ministers’ level would come down to a qualified majority rather than the unanimity required among leaders.

“We don’t mind as long as it gives Germany a sense of security”, the diplomat added. The result could be that leaders need to convene for an extra EU summit before the next regular one, in mid-December.

Chart du jour: Fuel poverty

Millions of people in central and eastern Europe cannot afford the higher gas and electricity prices caused by Russia’s invasion of Ukraine. Across the region, the cost of firewood has doubled from last year and the increased use of toxic fuels threatens to significantly raise emissions.

Moving shop

An increasing number of European businesses are looking at moving abroad, given that energy prices are much lower in the US and Asia, writes Andy Bounds in Brussels.

Fredrik Persson, head of employers’ group BusinessEurope, said companies on the continent remain unimpressed with the measures agreed so far and warned that energy prices remain too high for companies and jobs to survive.

“Some progress has been made but we still miss the game-changing steps,” he told Europe Express, urging the EU to decouple gas from electricity prices. Persson warned that the situation was deteriorating fast as fixed price energy contracts come to an end. “We haven’t seen the worst yet,” he said.

Already 70 per cent of fertiliser making capacity and 50 per cent of aluminium production have shut down in Europe, he said.

“This is typically the time of the year when you discuss your budgets and your investment decisions for the coming year. And energy is now a key concern. Should I invest somewhere else or should I cut back on investments in Europe?” 

Persson, a Swedish businessman who runs JM, a real estate developer in the Nordics and who is on the board of Electrolux and other companies, also warned that thousands of small and medium enterprises (SMEs) are at risk of shutting down.

“This is an existential issue for SMEs. We could lose the SME backbone of Europe. They are key employers, and key for innovation.”

It was therefore vital to bring down wholesale energy prices as soon as possible, because governments risked being unable to compensate businesses if prices stay at current levels, he said. (One example of governments being increasingly in over their head when subsidising energy bills is showcased in Romania.)

“Politicians need not to forget to think about business as well, because if people start losing their jobs, it will be hard to get the economy back on track.”

What to watch today

1. EU commission chief Ursula von der Leyen speaks at Grand Challenges annual conference

2. Environment ministers meet in Luxembourg on the EU’s negotiating mandate for COP27

3. EU chiefs of defence and Nato chief of military committee meet in Brussels

. . . and later this week

1. EU energy ministers meet in Luxembourg tomorrow

2. German Chancellor Olaf Scholz hosts Ukraine reconstruction conference tomorrow in Berlin

3. European Central Bank governing council meets in Frankfurt on Thursday

4. UN’s António Guterres, Janet Yellen and Michael Bloomberg take part in the EU sustainable investment summit on Friday

Notable, Quotable

Putin really is anachronistic. He’s pushing against an enormous current . . . The forces that did reduce war are still in operation, although they were not strong enough to deter Putin

• A psychologist’s view: In his latest interview, FT’s Henry Mance speaks to Steven Pinker about human rationality, Vladimir Putin and his war in Ukraine and the risks of nuclear annihilation.

• Communist party spectacle: China’s Xi Jinping has consolidated his power by appointing more loyalists to the upper echelons. The Communist party ceremony was overshadowed by what looked like a brief moment of rebellion from Xi’s predecessor, 79-year-old Hu Jintao, who was seen resisting as handlers sought to escort him out.