The reality of Europe's war economy

Brussels technocrats will attempt their most ambitious power grab yet in 2022 at the final scheduled meeting of European commissioners before the summer break: the right to impose mandatory gas rationing on the 27 member countries of the bloc.

Governments from Portugal to Poland are being asked to sign over their right to energy sovereignty in six days while their citizens suffer and die in record-breaking heat. Due to the emergency protocols being used, no country will be able to veto the plan, and the European Parliament will have no say in the matter.

Such extraordinary actions highlight how close European nations have come to going beyond the bounds of viability as a result of their support for Ukraine in the face of Russian invasion forces. The EU's dispute with Russia over gas is going to put the bloc's resolve to the absolute limit, given that inflation in the region has already risen sharply, partly due to market disruption brought on by the war. The economic blow may just be getting started.

The plan for an EU-wide alert system, which would enable Brussels to impose mandatory reductions in gas consumption from August to May, is detailed in various documents. In the event that it appears that the bloc will not have enough gas supplies to get through the winter, the cuts could "be triggered at any moment"

According to the proposal, nations must also update their national emergency plans by the end of September to include voluntary measures to reduce gas use.

The size of the possible gas consumption reductions has not yet been determined. The expectation is for a final agreement to be in the range of 10 to 15%, but two diplomats claim that a reduction of between 5 and 20 percent is being floated.

By July 26, when the EU's energy ministers are expected to approve the new regulations, Europeans may awaken to find that they are no longer permitted to blast the air conditioning or, as the weather cools in the coming months, turn up the heat excessively.

Businesses classified as "nonessential" could be paid to shut down voluntarily or, in the worst case scenario, be placed first in line for a gas cut, according to Commission documents. These businesses include local bakeries in some municipalities, such as Munich.

All of this is suggested in the name of the EU's solidarity campaign with Ukraine.

After a full-scale invasion of his eastern neighbor by Russian President Vladimir Putin for five months, a war economy with all of its repercussions is about to sweep across Europe.

By voluntarily reducing Russian gas consumption in the EU by two-thirds this year, Brussels aimed to voluntarily deny the Kremlin billions in natural gas sales revenue in an effort to halt the advance of Putin's armies.

That failed, and the EU nations made it clear that they were not willing to impose sanctions on gas even though an oil embargo is scheduled to begin in December.

Probably too late now: Moscow has already made three times as much money from oil and gas sales in one winter since the invasion, according to data from the International Energy Agency (IEA) released on Monday. As a result, it is able to continue cutting deliveries to Europe to the west.

Putin has eagerly embraced Europe's propensity for Russian energy, making gas his most effective economic tool. So far, Russia's Gazprom has reduced or stopped supplying gas to 12 countries. Brussels is currently attempting to regain control by limiting Europe's gas storage stock consumption as much as it can.

Coal plants are restarting across the EU, factories are switching to burning fuel oil, and a suspension of climate policy on emissions control is in the works as leaders' attempts to find alternate supplies from the Middle East have largely failed.

The gas pipeline Nord Stream, which runs from Russia to Germany, is scheduled to partially resume deliveries on Thursday following a 10-day break. The most likely scenario, according to national leaders in France, Germany, and Spain, is that Nord Stream remains offline. Russian gas flows through other routes into Europe are also expected to stop soon.

According to the Wall Street Journal, European Budget Commissioner Johannes Hahn told reporters in Singapore on Tuesday, "We’re working on the assumption that it doesn’t return to operation."

The long-term outlook will be grim if Hahn is correct. If Moscow stops supplying natural gas, estimates from the Commission predict a 1.5 percent drop in GDP for the entire bloc.

To withstand such a blow when temperatures drop, "the extra gas that needs to be saved over the next three months is [on] the order of 12 billion cubic meters — enough to fill about 130 [liquefied natural gas] tankers," said IEA Director Fatih Birol.

However, some of the most vocal proponents of sanctioning Russia are already wailing in protest at the Commission's most recent proposal. In some parts of Eastern Europe, it is unpopular to tighten the purse strings at home in order to support gas-guzzling neighbors like Germany.

One of the few capitals, Berlin, has ratified so-called "solidarity agreements," which commit neighboring nations to sharing extra gas during emergencies. The Commission has urged nations to sign more, but some are reluctant to do so for fear that, if there are not enough, these voluntary agreements will be forced upon them with legally binding domestic budget cuts.

According to Polish Climate Minister Anna Moskwa, whose nation now faces the looming possibility of a domestic coal shortage as a result of sanctions on Russian imports, "We are against imposing mandatory reduction targets," According to Commission records, Poland does not have any solidarity agreements with its neighbors, but Moskwa was adamant that "the solidarity mechanism must not lead to a reduction in the energy security of any member state."

Hungary has already made progress. The announcement by Viktor Orbán's administration that gas exports will be prohibited starting in August under new energy emergency plans drew a stern rebuke from Kadri Simson, the European Energy Commissioner.

"Individual national restrictions affecting gas cross-border flows are unwarranted and can only exacerbate problems in the current gas market situation," according to Simson.

Governments in Spain and Portugal are already partially subsidizing the price of the gas used to generate electricity, while France imports as much cheap energy as it can. Spanish skeptics point out that, given the limited gas connections between the two nations, saving gas at home will not do much to assist their French neighbors.

A think tank's associate director, Georg Riekeles, said, "We are in a situation where one needs to decide in the best possible way how to allocate resources. It’s very difficult to completely socialize or mutualize the cost of the crisis when the choices that are conditioning [the current situation] have been national."

The imposition of fuel rationing on EU nations would be unthinkable in normal circumstances, but given the winter risks, "we cannot exclude any option," an EU diplomat said.

According to another diplomat's blunter statement, "We don't like it at all." 

By fLEXI tEAM