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ENERGY

How European countries are spending billions on easing energy crisis

European governments are announcing emergency measures on a near-weekly basis to protect households and businesses from the energy crisis stemming from Russia's war in Ukraine.

How European countries are spending billions on easing energy crisis
Photo by Arthur Lambillotte on Unsplash

Hundreds of billions of euros and counting have been shelled out since Russia invaded its pro-EU neighbour in late February.

Governments have gone all out: from capping gas and electricity prices to rescuing struggling energy companies and providing direct aid to households to fill up their cars.

The public spending has continued, even though European Union countries had accumulated mountains of new debt to save their economies during the Covid pandemic in 2020.

But some leaders have taken pride at their use of the public purse to battle this new crisis, which has sent inflation soaring, raised the cost of living and sparked fears of recession.

After announcing €14billion in new measures last week, Italian Prime Minister Mario Draghi boasted the latest spending put Italy, “among the countries that have spent the most in Europe”.

The Bruegel institute, a Brussels-based think tank that is tracking energy crisis spending by EU governments, ranks Italy as the second-biggest spender in Europe, after Germany.

READ ALSO How EU countries aim to cut energy bills and avoid blackouts this winter

Rome has allocated €59.2billion since September 2021 to shield households and businesses from the rising energy prices, accounting for 3.3 percent of its gross domestic product.

Germany tops the list with €100.2billion, or 2.8 percent of its GDP, as the country was hit hard by its reliance on Russian gas supplies, which have dwindled in suspected retaliation over Western sanctions against Moscow for the war.

On Wednesday, Germany announced the nationalisation of troubled gas giant Uniper.

France, which shielded consumers from gas and electricity price rises early, ranks third with €53.6billion euros allocated so far, representing 2.2 percent of its GDP.

Spending to continue rising
EU countries have now put up €314billion so far since September 2021, according to Bruegel.

“This number is set to increase as energy prices remain elevated,” Simone Tagliapietra, a senior fellow at Bruegel, told AFP.

The energy bills of a typical European family could reach €500 per month early next year, compared to €160 in 2021, according to US investment bank Goldman Sachs.

The measures to help consumers have ranged from a special tax on excess profits in Italy, to the energy price freeze in France, and subsidies public transport in Germany.

But the spending follows a pandemic response that increased public debt, which in the first quarter accounted for 189 percent of Greece’s GDP, 153 percent in Italy, 127 percent in Portugal, 118 percent in Spain and 114 percent in France.

“Initially designed as a temporary response to what was supposed to be a temporary problem, these measures have ballooned and become structural,” Tagliapietra said.

“This is clearly not sustainable from a public finance perspective. It is important that governments make an effort to focus this action on the most vulnerable households and businesses as much as possible.”

Budget reform
The higher spending comes as borrowing costs are rising. The European Central Bank hiked its rate for the first time in more than a decade in July to combat runaway inflation, which has been fuelled by soaring energy prices.

The yield on 10-year French sovereign bonds reached an eight-year high of 2.5 percent on Tuesday, while Germany now pays 1.8 percent interest after boasting a negative rate at the start of the year.

The rate charged to Italy has quadrupled from one percent earlier this year to four percent now, reviving the spectre of the debt crisis that threatened the eurozone a decade ago.

“It is critical to avoid debt crises that could have large destabilising effects and put the EU itself at risk,” the International Monetary Fund warned in a recent blog calling for reforms to budget rules.

The EU has suspended until 2023 rules that limit the public deficit of countries to three percent of GDP and debt to 60 percent.

The European Commission plans to present next month proposals to reform the 27-nation bloc’s budget rules, which have been shattered by the crises.

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ENERGY

Italy to have enough gas ‘to make it through winter’

Italy’s current gas stocks should suffice for the upcoming winter but the government should be wary of unforeseen supply-chain issues, says ENI CEO Claudio Descalzi.

Italy to have enough gas 'to make it through winter'

Despite recent issues regarding Russian supplies, Italy should have enough gas to make it through the winter, said Claudio Descalzi, the CEO of Italian energy giant ENI, on Thursday.

“Russian gas has effectively been replaced” and the current conditions should afford the country some “tranquillity” ahead of the winter season, he added.

READ ALSO: Russia will resume gas deliveries to Italy, Gazprom says 

Prior to Russia’s invasion of Ukraine, gas from Moscow accounted for about 40 percent of Italy’s annual gas imports. 

At the present time, however, Russian gas only contributes to around 10 percent of the country’s demand, with deliveries sitting around “10-15 million cubic metres per day”, said Descalzi.

Logo of Russian energy giant Gazprom.

Russian gas, which is supplied by energy giant Gazprom, currently accounts for only 10 percent of Italian gas imports, down from 40 percent. Photo by Kirill KUDRYAVTSEV / AFP

ENI’s CEO also expressed contentment over the country’s gas-storing efforts, saying that national stocks “will soon be completely full” – according to the latest available indications, 90 percent of them have already been filled up. 

Descalzi’s words of reassurance came only a day after Russian energy giant Gazprom resumed gas deliveries to Italy. 

As previously reported by The Local, the supply of Russian gas to Rome had been suspended last Saturday due to disagreements over contractual obligations between Gazprom and Austrian energy regulator E-Control.

The incident had raised reasonable fears of a long-term suspension of Russian gas supplies, with Ecological Transition Minister Roberto Cingolani and Descalzi both stepping in over the weekend to reassure citizens about Italy’s gas reserves.

That said, despite the relative stability of Italy’s current energy status, a measure of uncertainty still lingers on. 

Descalzi himself admitted on Thursday that “technical issues on the part of suppliers” or an “exceptionally cold winter” might cause problems for Italy’s energy plans.

That’s why, he said, “regasification plants are so vital for next year’s winter” and to give further stability to the system.  

Two workers ride bicycles at the Barcelona's Enagas regasification plant.

Regasification plants will be vital to Italy’s plans to rely on liquefied natural gas supplies in the future. Photo by Josep LAGO / AFP

READ ALSO: What does the shut-off of Russian gas supplies mean for Italy?

Briefly, though Italy has chosen to bet heavily on Algerian gas in order to wean itself off Russian supplies – Algeria will supply Rome with as many as nine billion cubic metres of gas next year – the country will also receive a total of four billion cubic metres of LNG (Liquefied Natural Gas) from different African partners over the course of 2023.

Regasification plants, which essentially work to convert liquid gas to its gaseous state, will then be essential to unlock the potential of the new LNG supplies. 

Italy currently has three active regasification plants, but the construction of a fourth one near Piombino, Tuscany is now under consideration.

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