The EU’s trillion-euro question

RUSSIA’S invasion of Ukraine has thrown the European Union into yet another full-blown economic and political crisis. But while the war is the immediate cause of soaring gas, fuel, and electricity prices, the roots of Europe’s current pain run much deeper. The vulnerabilities of the European energy system have been evident since at least 2008. But the EU has been too slow to respond, failing to take the necessary measures to ensure greater resilience.

Our current age of “permacrisis” underscores the need for Europe to respond faster and more decisively to shocks. In recent months, European governments have significantly reduced their dependence on Russian gas imports, which plummeted from 45 per cent of the total last year, to just 5 to 6 per cent currently. But substituting Russian imports is not enough; Europe must also reduce consumption. To offset the severe impact on member states, households, and industry, EU-wide solidarity mechanisms are needed.

So far, such efforts have been lacklustre. Germany’s much-criticised 200 billion euro (S$283 billion) rescue package, which aims to shield companies and households from skyrocketing energy prices, is a prime example of the prevailing go-it-alone attitude. Germany’s attempt to gain a competitive advantage over its neighbours may spark a subsidy race that could increase energy prices further. Given the interdependence of EU member states and eurozone economies, this fragmentation is economically and politically toxic.