Reducing demand and cooling prices: the EU recipe against high energy prices

Speaking of state aid, EU spokesman Ricardo Cardoso has just confirmed that Rome and Brussels have just started discussing this week the modalities of the so-called Decreto Bollette, the aid measure decided by the Meloni government to support families and businesses in dealing with the energy shock. When asked for more information, the spokesman explained that he could not add anything else for now. The talks have just started.

Meanwhile, the European Commission presented a mini-reform of the ETS market this week. More substantial news could come in the coming days when Brussels will present changes to the parameters that determine the distribution of free certificates. Finally, in July the EU executive will present a broader reform to adapt the ETS market to the decision to reduce emissions by 90 per cent by 2040.

Suspend the Pact?

There is a prevailing feeling in many European countries that the new Middle East crisis fully justifies the decision to reduce the demand for gas and oil and to promote the use of renewables, in order to enable Europe to become more independent. On the subject of demand reduction, Brussels recalls that in 2022 a Council regulation opted for emergency measures. Among other things, on a voluntary basis the Twenty-Seven were called upon to reduce gas consumption by 15 per cent.

Finally, there is the issue of public accounts. According to information gathered on the sidelines of last Friday's Eurogroup meeting, two countries - one must assume Italia and Greece - suggested not closing the door on the possibility of suspending the Stability Pact, as in 2020-2022. No other country would have taken up this idea, and the European Commission itself would have noted that the use of the emergency clause (escape clause, in English) is not, at this moment, justified.

The sharp increase in public debts caused first by the pandemic and then by the Russian invasion of Ukraine induces caution, both on the Stability Pact front and with regard to state aid. More generally, in reacting to the new crisis, the European Union must strike a balance between the need to support the economy and counteract the risk of stagflation, the fear of leaving dangerous scars, and the desire to defend the long-term strategy towards transition.