The Netherlands and Germany would not have to oppose a European price ceiling for energy so much if they stop guaranteeing indefinitely. The energy market has its own natural maximum.
As with the euro crisis at the beginning of the previous decade, Northern and Southern Europe are facing each other in the gas crisis. Southern Europe, led by Italian Prime Minister Mario Draghi, is annoyed by rich countries like Germany – and to a lesser extent the Netherlands – which can provide their people and companies with almost infinite support to bear the high energy bills thanks to their deep pockets. This is much less easy for countries in Southern Europe because of their fragile budgets.
Just as with the euro crisis, Southern Europe is calling for the collective to absorb the blows of the crisis. For example, by creating European funds to support consumers and businesses.
Draghi is also the great champion of a maximum energy price. EU member states must promise that they will never pay more than a predetermined amount for their gas or electricity. That Draghi asks for this is understandable. Last summer, Germany as the largest gas buyer drove the gas price to astronomical heights. All of Europe suffered as a result.
It is not surprising that Draghi is arguing for curbing the gas market. As president of the European Central Bank, he did something similar in 2012 in the European bond market. The interest rates, which soared during the euro crisis, were pushed downwards by him. So it’s not the first time Draghi believes that governments and central banks should calm markets, rather than stir them up – as Germany did last summer.
The Netherlands and Germany continue to struggle. They fear that a maximum price will lead to non-European countries that are willing to pay more, stealing all the gas in front of Europe. They also fear that the energy will be sold on to countries where there is no maximum.
It is good to realize that the gas price has a natural maximum. If the gas price is so high that many economic activities are no longer profitable and are discontinued, demand and therefore the price will automatically fall. If the gas price is high, there will also be a very strong urge to invest in other, more sustainable energy sources, which increases the supply and also lowers the price.
Major problems only arise when the state intervenes in the market, as it did last summer. At the time, governments were so afraid that companies wouldn’t replenish their gas supplies that they promised to cover all possible future losses. The market then derailed. There was no longer a natural maximum, that had been removed by the authorities.
It is good that the EU Member States have decided to jointly purchase gas to prevent them from bidding against each other again in the future. That is the main result of the negotiations at the end of last week. A maximum price does not have to be necessary, provided that countries such as Germany and the Netherlands promise that they will never again guarantee losses indefinitely. That guarantee must be limited to a maximum. In that case, the market will in principle solve the problem of the extremely high prices itself.