EU leaders to debate cap on gas prices

BRUSSELS Reuters will hold horns on Friday over whether and how to cap gas prices, as they try to keep pace with a surge in energy prices that threatens to push the 27 nation bloc into recession and disrupt the EU's cherished single market.

According to officials, the leaders of Prague are unlikely to come up with concrete measures on Friday, but should tell their energy and finance ministers which of the several available solutions to pursue further.

A senior EU official who is involved in the preparations for the talks said that the energy topic is probably the most important topic of the informal meeting.

It is not a topic that the leaders will solve. The leaders need to provide strategic guidance and then the finance ministers and energy ministers can come up with the appropriate solutions, the official said.

The drop in Russian gas supplies and resulting jump in energy prices has hit some countries harder than others because of the 27 EU countries having different energy needs, suppliers and energy markets.

Fifteen EU countries want a price cap on gas but don't agree on the details of how it should be done. Germany, the Netherlands and Denmark oppose price caps, fearing it would disrupt the market and make it difficult for them to buy gas they need to keep their countries running.

The European Commission will present a variety of options, including a price cap on gas used to generate electricity and a broader temporary price cap, while Brussels works on a new benchmark for gas prices to replace the Dutch Title Transfer Facility, which has become extremely volatile due to the huge reduction in Russian gas supplies.

The idea of a price corridor that could be lifted in a supply emergency was proposed by Poland, Greece, Belgium and Italy on Thursday. A document outlining the idea said that it would ensure that the measure did not compromise Europe's energy security wiggle room, which some EU officials said could offer a way to compromise with sceptical states.

There isn't a single measure that will solve all the problems, a senior EU official said. We all come to the conclusion that it will be multiple measures. The surge in gas and electricity prices, caused by Russia stopping gas deliveries to Europe, has boosted inflation to record highs of 10% and caused steep interest rate rises, leading to an EU cost-of-living crisis.

The EU governments are trying to come up with measures to relieve the pain for households and businesses because of the energy price surge, which is threatening to kill businesses and leave people struggling to heat their homes during winter.

Such measures work against the European Central Bank's efforts to bring down inflation and can threaten fair competition in the bloc because not every country can afford the same amount of support to businesses, which is welcomed by voters.

Germany drew criticism from its EU peers last week when it announced a support programme for companies and households of up to 200 billion euro $196 billion, dwarfing similar French and Italian schemes one third its size.

Berlin's plan prompted top European Commission officials to propose new borrowing by the bloc to generate funds that could be used to deal with the energy crisis.

Some of the northern European countries are reticent. If the EU had borrowed money in the form of loans to EU governments and could only be spent on investment, rather than consumption, a compromise could be reached.

Countries will not be comfortable with European funding for consumption. There is more openness for joint European funding for investments, and that's where the landing zone could be, the senior EU official said.