European governments splurging €500bn to cushion energy crisis: report

Governments in Europe have earmarked nearly €500 billion in the last year to cushion citizens and companies from soaring gas and power prices, according to research published by think-tank Bruegel on Wednesday (21 September).

Months of surging prices have seen governments roll out measures to curb retail power prices, slash energy taxes and give subsidies to bill-payers.

European gas and power prices have rocketed as Russia has cut fuel exports to retaliate for Western sanctions over its invasion of Ukraine.

The EU’s 27 countries have collectively allocated €314 billion for measures to ease the pain, while Britain has set aside €178 billion, according to Brussels-based Bruegel.

If the cash governments have earmarked to nationalise, bail out or provide loans to ailing energy utilities was included, then EU governments have spent closer to €450 billion, the think-tank said.

Germany nationalised gas importer Uniper on Wednesday and Britain capped the wholesale cost of electricity and gas for businesses.

Many of the measures were designed to be temporary – but Bruegel said the state intervention has ballooned to become “structural”.

“This is clearly not sustainable from a public finance perspective,” said Bruegel senior fellow Simone Tagliapietra. “Governments with more fiscal space will inevitably better manage the energy crisis by outcompeting their neighbours for limited energy resources over winter months.”

Germany, the EU’s biggest economy, is by far the biggest spender in the bloc – setting aside €100 billion, versus €59 billion in Italy, or €200 million in Estonia, for example.

Croatia, Greece, Italy and Latvia have all earmarked more than 3% of their GDP to tackle the energy crunch.

The EU last week proposed bloc-wide measures to respond to sky-high energy prices, in a bid to overlay the patchwork of national responses with a coordinated reaction.

“This level of intervention can deepen economic divergences within Europe. It is important to coordinate these policies among European countries,” said Giovanni Sgaravatti, co-author of the report at Bruegel.

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Corporate casualties

Uniper has been among the biggest corporate casualties, with Germany earmarking an additional €8 billion on Wednesday in the latest step in a €29 billion bailout.

France, also among the high spenders, will allocate €9.7 billion to take full control of utility EDF.

Britain said its new plan to help businesses would cost “tens of billions of pounds.”

“We have stepped in to stop businesses collapsing, protect jobs, and limit inflation,” Britain’s finance minister Kwasi Kwarteng said of the cap on wholesale electricity and gas costs for businesses, which is set to apply from 1 October.

More than 20 British power providers have collapsed, many crumbling because a government price cap prevented them from passing on soaring prices.

Uniper’s full nationalisation will involve the German government buying out Finland’s Fortum to give the state a 99% holding.

“The state will…do everything possible to always keep the companies stable on the market,” said German Economy Minister Robert Habeck, announcing the Uniper move.

The German government has already put Gazprom Germania, a unit of Kremlin-controlled Gazprom, and a subsidiary of Russian oil company Rosneft under trusteeship – a de facto nationalisation. Including Uniper’s bailout, the bill amounts to about €40 billion.

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Windfall tax

To help finance social protection measures during the crisis, the European Commission has announced the creation of a windfall tax on the “revenues of companies that produce electricity at a low cost” – typically renewables and nuclear.

A separate “solidarity contribution” will be demanded of oil and gas companies, which have reaped extraordinary profits from soaring prices on global energy markets.

“Our proposal will raise more than €140 billion” for EU member states to cushion the blow of the energy crisis on European consumers, said EU Commission President Ursula von der Leyen, who announced the move last week in her annual State of the Union speech.

TotalEnergies’ CEO Patrick Pouyanné said on Wednesday that the French energy group was likely to face more than €1 billion in additional levies if the proposed EU scheme to impose extra taxes on oil and gas companies was approved.

EU plans 'solidarity contribution' from oil and gas firms during energy crisis

Oil and gas companies will have to share their excess profits to help European households and industries cope with red-hot energy bills, a draft European Union plan showed on Monday (12 September).

[Edited by Frédéric Simon]

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