Energy crisis on leaders’ minds at EU summit

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When leaders gather tomorrow for a two-day summit in Brussels, energy will not be officially on the agenda. But as the International Energy Agency is warning today that the bloc must prepare immediately for the complete severance of Russian gas exports this winter, the continuing energy crisis has the potential to dominate leaders’ discussions once again.

With the European Commission proposing tighter enforcement of sustainability sanctions in new trade deals today, we’ll look at how that squares with a call from more than half of EU countries to sign more trade agreements.

And in Polish news, we’ll explore the reasons behind Jarosław Kaczyński’s decision to withdraw from government.

Hot button issues

The worsening energy crisis may not feature in the draft conclusions for the EU’s summit this week — or indeed in European Council president Charles Michel’s invitation letter — but it will be top of many leaders’ minds as they arrive in Brussels tomorrow, write Sam Fleming and Valentina Pop in Brussels.

The situation is becoming increasingly dire. Energy prices were up nearly 40 per cent in May compared with a year earlier, making it far and away the biggest driver of the euro area’s heady 8.1 per cent inflation rate. Gas prices are now at least six times more expensive in the euro area than they were before the pandemic.

The situation is just becoming worse as Russia throttles back gas deliveries. The question is what member states can do about it, as the politically toxic spectre of inflation hangs ever more heavily over their electoral fortunes.

There are few easy answers. Brussels has touted its efforts to identify alternative gas supplies and drive fresh renewables investment, and it is busy encouraging member states to do more to save more energy, including by lowering the settings on air conditioners.

But many of the solutions are likely to remain quite country specific.

Germany, for example, ranks alongside the member states (among them also the Netherlands and Austria) that are firing up coal plants as they try to offset soaring power prices. The moves have already prompted a warning from the commission that member states should not lose sight of their green goals.

Christian Lindner, the German finance minister, this week tweeted on the previously unmentionable idea of extending the lifespans of his country’s nuclear power plants, something that has generally been viewed as politically impossible.

Mario Draghi, the Italian prime minister, reiterated his appetite for the imposition of price caps when he spoke to the country’s parliament yesterday, saying action at EU level was even more urgent, given reduced gas supplies from Moscow.

He will probably come to Brussels ready to proselytise on the topic once again. But he has struggled in the past to win over the EU’s 27 member states to the idea. Looming in the background is the fraught question of whether energy rationing may be needed, as the EU works on co-ordinated plans in case the supply situation worsens.

The energy topic is set to play out at G7 level too, as a summit looms in Germany on Sunday. The US has been imploring its allies to consider price caps on oil as it seeks to drive down the Kremlin’s revenue — and undercut the momentum behind the rampant US inflation rate.

This idea, too, has been met with scepticism from a number of big European capitals, but it remains a live debate going into the G7 summit in the Bavarian Alps. There may be more mileage in the concept if the price cap is targeted at lower and middle-income oil importers.

As for the leaders’ discussions in Brussels, the euro summit on Friday is likely to see an eruption of angst over soaring inflation and energy prices, as member states become increasingly alarmed by where the region’s economies are heading.

“With Ukraine’s candidate membership out of the way, it offers room for EUCO to turn into a group-therapy session to discuss domestic issues such as energy prices and inflation,” said an EU diplomat.

Chart du jour: ECB warning

Read more here about why the European Central Bank is projecting that food prices in the eurozone will continue to rise at near-record rates for at least another year.

Free trade alliance

More than half the EU’s member states have written a forthright letter to trade commissioner Valdis Dombrovskis telling him to sign more free trade agreements, writes Andy Bounds in Groningen.

Several deals are on ice because of concerns over deforestation, cheap food imports or security (talks with Australia froze temporarily after it cancelled a contract to buy French submarines in favour of Anglo-American ones).

The 15 governments signing the letter, sent on Monday, include noted free traders such as Germany and Sweden but also Portugal and Italy. The signatures of two of the big three member states puts pressure on the third, France, which has used its presidency to delay approval of deals with Chile and New Zealand.

The letter warns that other countries are overtaking the EU in expanding trade ties.

The Regional Comprehensive Economic Partnership (RCEP) between Asean and Japan, China, South Korea, Australia, and New Zealand enters into force this year and “should be a wake-up call for Europe”, the letter says.

“With RCEP in place, Japan will have free trade agreements covering 80 per cent of its trade. The EU’s trade agreements cover only about a third of our external trade. With 85 per cent of the world’s future growth projected to occur outside the EU, we need to do better than this.”

The commission has relaunched talks with India last week and officials say a New Zealand deal could be ready within weeks.

But today Dombrovskis will announce tighter enforcement of sustainability sanctions in new deals, which could make getting partners to sign harder.

The letter calls for the acceleration of trade agreements with New Zealand, Australia, India, and Indonesia and the adoption of concluded deals with Chile, Mexico, and Mercosur.

Trade deals “would ensure our access to key foreign markets, our long-term economic growth, and our geopolitical standing in the world” when the Russian invasion of Ukraine has showcased the rise of autocracies.

“We need to take advantage of windows of opportunity when they open, otherwise others will,” it warns.

Out, but not quite

By announcing his withdrawal from government yesterday, Jarosław Kaczyński, the leader of Poland’s governing Law and Justice party, set off the unofficial starting gun for the campaign ahead of next year’s parliamentary elections, writes Raphael Minder in Warsaw.

His withdrawal was anticipated, since Kaczyński had made clear before the Ukraine war that he would leave a government in which he retained a second-tier role, as deputy prime minister as well as head of a national security committee.

But as the mastermind of his party, Kaczyński remains Poland’s most influential politician, with the result that his announcement brought the focus back on Poland’s tense domestic politics after months in which they had been eclipsed by the more pressing issue of containing Russia’s military threat.

In a comment made to Poland’s national news agency, Kaczyński said “I have decided to concentrate on what is most important for the future of Poland”, namely helping his party win elections that are expected to take place in the autumn of 2023.

Since February, Russia’s invasion of Ukraine has not only overshadowed Poland’s internal political debate but also helped the staunchly anti-Russian government in Warsaw recast itself as a defender of western democratic values, having previously been castigated as the largest flouter of EU rules within the 27-nation bloc.

Having threatened to withhold post-pandemic recovery funds for Poland, the commission instead approved earlier this month a financial aid package of as much as €36bn that had been held up because of a dispute over whether the Polish judiciary has sufficient independence.

Kaczyński was also quick to distance Poland from Hungary — its previously clearest ally in its disputes with Brussels — and denounce instead Viktor Orbán, the Hungarian prime minister, for maintaining his allegiance to Moscow. In a radio interview in April, he described Hungary’s stance in the Ukraine conflict as “very sad.

As further evidence of the reversal of roles, Hungary blocked last week an EU corporate tax deal that Poland had previously opposed but on which Poland has now changed tack.

The Ukraine war has helped Law and Justice widen its lead over rival parties, according to opinion polls. But as a wily veteran politician, Kaczyński will also know that his party is facing an uncertain year in which the nationalist sentiments sparked by Russia could gradually be overtaken by economic malaise, as Poland now finds itself struggling with one of Europe’s highest inflation rates.

As Kaczyński warned yesterday, his party “must regain vigour” in order to win a third term in office.

What to watch today

  1. Prime minister of Croatia, Andrej Plenković, speaks in the European parliament

  2. European Commission president Ursula von der Leyen and Spanish PM Pedro Sánchez present an initiative for vaccine co-operation with Latin America

  3. European Commission tables proposals on halving the use of pesticides by 2030

Notable, Quotable

  • German controversy: Chancellor Olaf Scholz’s foreign policy adviser, Jens Plötner, has sparked controversy yesterday when he said the media should focus more on Germany’s future relationship with Russia than on arming Ukraine and criticised Kyiv’s structural problems with the rule of law.

  • Petrol engine fan: Germany’s finance minister, Christian Lindner, has rejected EU plans for a de facto ban on the sale of new combustion engines cars by 2035. He also floated the possibility of keeping Germany’s nuclear reactors going instead of using coal-powered plants.

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