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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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EUROPEAN UNION

EU court rejects Austria case against Hungary nuclear plant

The EU's second highest court on Wednesday rejected a complaint by Austria against a European Commission decision to approve the expansion of a nuclear plant in neighbouring Hungary with Russian aid.

EU court rejects Austria case against Hungary nuclear plant

Staunchly anti-nuclear Austria lodged the legal complaint in 2018 after the European Union’s executive arm allowed the expansion of the Paks nuclear plant outside the Hungarian capital Budapest with a 10-billion-euro ($12.4 billion) Russian loan.

The plant is Hungary’s only nuclear facility and supplies around 40 percent of its electricity needs.

In its decision the commission judged that the project met EU rules on state aid, but Austria disputed this.

The General Court of the EU ruled Wednesday that “member states are free to determine the composition of their own energy mix and that the Commission cannot require that state financing be allocated to alternative energy sources.”

READ ALSO: Why is Austria so anti nuclear power? 

Hungary aims to have two new reactors enter service by 2030, more than doubling the plant’s current capacity with the 12.5-billion-euro construction. The Paks plant was built with Soviet-era technology in the 1980s during Hungary’s communist period. 

The construction of two new reactors is part of a 2014 deal struck between Hungary’s right-wing Prime Minister Victor Orban and Russian President Vladimir Putin. The work is carried out by Moscow’s state-owned nuclear agency Rosatom.

The details of the deal have been classified for 30 years for “national security reasons” with critics alleging this could conceal corruption.

READ ALSO: Reader question: What are the chances of blackouts in Austria this winter?

Since the late 1970s, Austria has been fiercely anti-nuclear, starting with an unprecedented vote by its population that prevented the country’s only plant from providing a watt of power.

Last month, the Alpine EU member filed a complaint with the European Court of Justice over the bloc’s decision to label nuclear power as green.

In 2020, the top EU court threw out an appeal by Austria to find British government subsidies for the nuclear power plant at Hinkley Point in breach of the bloc’s state aid rules.

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