Why EU’s winter gas plans face an uphill struggle

Good morning and welcome to Europe Express.

The European Commission published its winter-saving plans for gas consumption yesterday and is making a push for capitals to endorse them before the summer break, but many governments still have questions and a dose of scepticism about the modalities and targets.

Rome meanwhile has more pressing matters to grapple with, such as the fate of prime minister Mario Draghi, who seems set to tender his resignation (again) after a walkout by more parties yesterday. The prospect of early elections and continued political turmoil in Italy is a worst-case scenario for his former colleagues at the European Central Bank who are meeting today to adopt an expected rate rise and an instrument aimed at helping countries, notably Italy, if their borrowing costs go through the roof.

In rule of law news, relations between Budapest and Brussels may be on the mend when it comes to unblocking the country’s slice of the post-pandemic recovery plan, but other funds are at risk because of limited progress in the fight against corruption.

(Com)mission creep

European solidarity will be under pressure this winter if Russian gas supplies are drastically cut, write Alice Hancock in London and Sam Fleming and Valentina Pop in Brussels.

According to its “Save gas for a safe winter” plan, published yesterday, the commission will ask member states to cut gas use by 15 per cent and push those that have more gas to share it with neighbours who are struggling to supply critical consumers such as households and hospitals should there be severe energy shortages.

The gas cut target will be voluntary to start with but under a new legal proposal could be made compulsory if the commission invokes an “EU alert” status: an EU-wide emergency level triggered if there is “a substantial risk” of a “significant deterioration” in gas supply, although no hard figures were given to flesh out what “substantial” or “significant” might mean.

It could also be activated if three EU capitals request it.

But several member states are more than unhappy about the plan.

Following a meeting of EU ambassadors yesterday after the announcement, two diplomats in the room said that the Germans, French, Poles, Dutch, Irish and several others had concerns about “commission creep” and wanted the council to have a say when an emergency phase might be triggered.

Several diplomats and EU officials said they did not think the plan would achieve the majority vote needed for approval at an emergency meeting of energy ministers next week. 

“Everyone was raising questions about the legal basis for triggering the emergency phase and therefore the mandatory targets,” said one diplomat. Another said the commission was pushing for “high voltage negotiations in the coming days but they could be facing blackouts,” and that the proposals are “too ambitious”. 

A third diplomat struck a more conciliatory tone but said that “solidarity is the main issue”.

At least the Czechs, who hold the rotating EU presidency for the rest of the year, were ostensibly in favour. The Czech industry and trade minister Jozef Síkela tweeted that he was “glad that today’s proposal of the European Commission to prepare for winter focuses primarily on savings . . . even small changes significantly reduce consumption and thus dependence on Russia.”

Without the Germans and French firmly on board and with Spain outright rejecting the proposal, it certainly seems the plan could receive a frosty reception when ministers meet in Brussels next Tuesday.

“It’s rather difficult to think about winter when so many of our countries are sweltering in the heatwave,” said one EU diplomat. “We don’t know how bad the situation will be or what Russia will do next. It’s a bit too soon to adopt these plans now, my bet is we’ll get back to them in September.”

Chart du jour: End of an era

The ECB today is expected to raise interest rates by half a percentage point, outstripping its own guidance, as it seeks to contend with record inflation. Baltic countries where inflation is nearing 20 per cent broke ranks recently to publicly call for this rate rise.

Rule of flaw

In recent days Hungary has been strikingly upbeat about the state of its talks with the commission aimed at gaining access to a share of the EU’s recovery fund. But while both sides agree that they are making progress on that front, relations between Brussels and Budapest still remain decidedly fraught, writes Sam Fleming.

Věra Jourová, vice-president for values and transparency, told Europe Express that the commission will write to Prime Minister Viktor Orbán warning him that unless Hungary addresses rule of law concerns raised by Brussels in a separate, but parallel process, he could lose access to swaths of EU funding.

The commission has been pursuing action against Budapest under its new “rule of law conditionality mechanism”, which allows Brussels to withhold funding to countries that violate EU standards.

Brussels formally kick-started the mechanism in April, declaring it had “serious concerns” about what is happening to EU money in Hungary. 

While Budapest recently proposed some remedial measures in a letter to the commission, Jourová said these were “not sufficiently convincing” — along a number of lines. 

She wants to see sufficient safeguards against fraud, corruption, and on public procurement procedures — in particular the question of why so many contracts only attract a single bidder. The commission needs 100 per cent assurances that Hungarian processes “protect EU money against criminal activities,” she added. 

The EU’s budget commissioner, Johannes Hahn, will write a letter to Hungary warning of the remedial steps the commission could take and giving it a month to respond. 

There are two possible outcomes to this letter, Jourová explained. One is that Hungary comes back with a response that leaves the commission “fully satisfied,” meaning the action could stop. 

If not, however, the commission would put proposals to the council to freeze “some part” of Hungary’s EU funding. The commission would not be seeking to withhold the entirety of its payments to Hungary, she signalled, but would insist on “proportionate” measures. 

Cohesion could be particularly impacted, however, Jourová suggested, observing that the vast majority of this type of funding is allocated via procurement. 

As for Hungary’s efforts to clinch an agreement permitting access to the EU recovery fund, Jourová said the commission was still assessing whether Budapest’s proposals were adequate. But while Hungary’s recovery fund bid has also been overshadowed by rule of law concerns, Jourová stressed that there are wider factors at play.

“The primary purpose of the recovery fund is to help the economy of the state, and not to heal the problems in the rule of law,” she said.

What to watch today

1. European Central Bank governing council in Frankfurt

2. Russia’s Nord Stream 1 gas pipeline to Germany should come back online

Notable, Quotable

In these exceptional circumstances, and acknowledging Ukraine’s exemplary track record of honouring debt service to date . . . [we] strongly encourage bondholders to consent to Ukraine’s request

• Debt, suspended: Ukraine has secured preliminary agreement from government creditors and bondholders to suspend debt repayments from August 1 until at least the end of 2023, as it struggles to plug a budget deficit running at $5bn a month.

• Truss vs Sunak: Liz Truss will challenge Rishi Sunak in the race to become Britain’s next prime minister as the bookmakers’ and opinion polls put the foreign secretary as the favourite to succeed Boris Johnson.