Europe’s Energy Crisis Exposes Old Fault Lines and New Power Dynamics

PRAGUE — Against the fairy-tale backdrop of a medieval castle and amid warm words of unity against Russia, European leaders meeting at the Czech capital didn’t even try to conceal disagreements over what to do about the spiraling energy crisis engulfing their nations.

Gathering in Prague Thursday and Friday — first together with leaders from the broader region, then just among themselves — European Union leaders took another stab at possible ways to bring down energy prices.

European countries are facing dwindling supplies of Russian natural gas, which many depend on for electricity and heating in households and industry. The scarcity has distorted the market, driving gas prices to historic highs and pulling up the price of electricity, which is also skyrocketing. This means that Europeans are facing unmanageable power bills and factory slowdowns while inflation, already much higher than normal, is being pushed up further.

As often happens during crises, E.U. countries are fast falling behind their traditional fault lines: north versus south, richer versus poorer.

Whether they manage to tackle this crisis will help determine the answers to a broader set of crucial challenges: Can they can band together to soften and shorten the looming recession?Can they maintain a united front against Russia? And can they keep political stability at home ahead of a wave of elections and an ascendant far right?

Judging by the meetings in the Prague Castle this week, it’s not looking great.

The bar was set low from the outset: “There will be no decisions today,” said Ursula von der Leyen, president of the European Commission, the E.U.’s executive arm, as she arrived at the meeting Friday morning. Instead, she said, talks should prepare the ground for decisions later this month, on Oct. 20 and 21, when the leaders will convene in Brussels.

Germany, the bloc’s de facto leader and by far its wealthiest economy, is being accused of prioritizing helping itself, even if that indirectly hurts its partners and undermines its dominant role in the European Union.

European leaders posing between meetings at Prague Castle in the capital of the Czech Republic on Friday.Credit…David W Cerny/Reuters

Its wealth means that it can offer big domestic subsidies on a national level. Critics say it also doesn’t prioritize lowering the price of natural gas for the whole E.U., which could level the playing field to benefit poorer countries.Diplomats from critical countries said that Germany can afford the expensive gas and outbid other poorer E.U. countries for it, and had so far been reluctant to support the idea of setting a cap on the price of natural gas for the whole of the E.U. The diplomats spoke on condition of anonymity, in order to be able to speak frankly.

Last week the government in Berlin announced a 200 billion euro, or $196 billion, aid plan for German households, businesses and industries. It includes policies to curb natural gas and electricity prices domestically and, critics say, will clearly give Germany an advantage over its European partners.

The German government leads a group of richer, northern E.U. states opposing a menu of proposals that could curtail natural gas or electricity prices in order to de-escalate astronomical energy costs across the board.

More than half the E.U.’s 27 member nations think that attitude is harmful, and some are saying so out loud.

“We are strongly opposed to the destruction of the European single market, a destruction which will take place in the event that the German government is allowed to subsidize only its own enterprises,” Prime Minister Mateusz Morawiecki of Poland told reporters in Prague Friday morning.

“My message to Germany is to be united, show solidarity with all the others,” he said. “Because during difficult times, everybody has to agree on a common denominator, not just one denominator that is suitable to one country.”

He added that there would be a “heated discussion about this German egotism.”

Even President Emmanuel Macron of France, who has been trying to bridge the two camps, is advocating joint action on energy prices at the E.U. level.

“If we stay selfish, nationalistic, we will be idiots,” Mr. Macron said in Paris on Thursday before flying to Prague. “If every country negotiates for themselves, there is not much left on the market. If we negotiate on the European level, we have clout.”

The German government rejects such criticism.

A supermarket in Nice, France. Europeans are facing sharply higher power bills and soaring inflation on essentials products like groceries.Credit…Eric Gaillard/Reuters

“What Germany is doing is right,” the country’s chancellor, Olaf Scholz, told reporters after Friday’s Prague meeting. “It is exactly what we have to do now to relieve the burden on our citizens. We are an economically strong country, so we can do this. We have always paid attention to our financial stability, and rightly so, so that we can act in crises.”

The chancellor’s arguments are finding little support outside the circle of wealthy E.U. allies that also includes Austria and Nordic nations, often referred to as the “frugals.”

“Germany has lost a large part of its moral authority within the E.U. and, as a result, the European institutions and many member states are more willing to explicitly call out the German government’s hypocrisy, both in terms of historical choices they’ve made as well as the political choices that are now being made to address the energy crisis,” said Mujtaba Rahman, who leads the Europe practice at Eurasia Group, a consulting firm.

“This reflects the extent to which Germany’s star has fallen within Europe,” he added.

The open criticism of Germany speaks to Berlin’s wobble on the European stage, as it continues to transition from the era of Angela Merkel, its leader of 15 years and one of the most important politicians in the bloc’s recent history, into a new governing coalition led by Mr. Scholz.

Germany seems to be losing its traditionally tight grip of the European Commission, the E.U.’s executive branch, which drives policymaking and has long been accused of being Berlin’s long arm in Brussels.

The commission is led by Ms. von der Leyen, a protégé of Ms. Merkel among German conservatives, who are political foes of Mr. Scholz, a Social Democrat.

Soon after Mr. Scholz unveiled his 200 billion euro package, two senior European commissioners, Thierry Breton, France’s representative, and Paolo Gentiloni of Italy, published an op-ed in several European newspapers criticizing the plan. They said it could distort the core function of the European Union: its internal market, and the ability to trade freely and fairly within it.

“The massive 200 billion euro aid plan decided by Germany (worth 5 percent of its GDP) responds to a need we recognize and have highlighted — to support the economy. But it also raises questions. How can EU countries that do not have the same fiscal space also support businesses and households?” the E.U. officials asked in the piece.

Demonstrators protesting surging energy prices and increased living costs in Vienna on Sept. 17.Credit…Lisa Leutner/Reuters

Ms. von der Leyen on Friday repeated the concern that subsidies might distort the single market, calling it “our single best asset in times of crisis.”

“Therefore we need to preserve it, it is of paramount importance,” she added.

Ms. von der Leyen, whose experts at the European Commission are responsible for drawing up joint policies, said she would propose several E.U.-wide measures to bring down gas and electricity prices, and offer a way for E.U. countries to jointly buy natural gas next spring, which would undercut Germany’s current advantage.

“One thing is very clear: it is of paramount importance that we have a joint procurement of gas so that we avoid outbidding each other but that we have collective bargaining power,” she said.

Before their next meeting, in two weeks’ time, leaders will need to take a close look at these options and reach some compromise.

And, however loud the criticism of Germany might be, it will be hard to get anything done in the E.U. without Berlin.

“The view of a large part of the E.U. and the commission is that this is a textbook example of an external shock that requires a collective response to help address its consequences,” said Mr. Rahman.

“But that’s just not the approach nor thinking in Germany,” he said. “And if that’s not where Germany is, you can’t get agreement at the European level.”

Erika Solomon contributed reporting from Berlin and Monika Pronczuk from Brussels.

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