Why is it that businesses have to suffer because a bunch of leaders cannot let go off their ego? Rising gas prices in Europe owing to disrupted supply from Russia has tensed the European leaders who have failed to scout for alternate sources.
Well, Europe is now in the grip of a severe energy crisis and many member states like Germany are approaching rapid de-industrialization and shockingly that is not even the biggest problem. The continent’s energy situation is threatening as well as questioning the ability of governments to keep people warm during the upcoming winters.
Apparently, European leaders have explored options like gas rationing to make the best of the prevailing situation but unfortunately are still unable to control the exploding prices of electricity and oil.
The EU is in the midst of a “parallel crisis”, with sky-high gas prices pushing up the cost of electricity to unprecedented levels.
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On Friday, prices in Germany climbed to €1 per Kilowatt hour while in France, year-ahead electricity prices soared to €1,130 per megawatt-hour, according to data from the European Energy Exchange.
Unable to cope with the increasing problems and being too egoistic to reach a settlement with Putin, the European leaders have now decided to ruin the very organizations, responsible for generation of electricity.
The German government recently said it was looking at decoupling gas and electricity markets as a way to curb rising power prices in Europe, with Brussels and Vienna following suit on Sunday.
As the European governments have little control on the prices of gas, they are proposing to put a cap on the prices of electricity produced.
But, how can one expect the price of the final product to remain stable while the cost of production keeps on increasing.
If Russia and other gas exporters decided to further curb the supply of gas in Europe, the price of gas would rise and so would the cost of production, but the price of electricity is to remain stable, as per the proposed policy.
How long would this freeloading go on before the producers declare bankruptcy owing to stacking losses?
Energy experts, on their part, are skeptical, saying that the market does not work according to the whims and fancies of a theoretically possible but not practical policy.
“Extremely worrying that people are always looking for new straws to solve the problems more easily than is realistic,” tweeted Veronika Grimm, an economist and independent advisor to the German government.
European leaders are therefore now calling for an overhaul of the current marginal pricing system for electricity. Under this system additional electricity demand is met by burning of gas. As a result, the prices of gas and electricity become directly proportional to each other. This in actuality is how an efficient economic structure would function irrespective of what the governments say.
The system proposed by the continent is basically a planned and systematic dismantling of large electricity producers.
What the governments have failed to come to terms with are the long term effects of the new system. Followed by huge losses, would be bankruptcy which would be accompanied by mass layouts leading to a complete halting of the sector.
The EU leadership should probably hire better economists to come up with practical strategies to control the situation rather than shifting the burden on private players. Most probably, Putin has not really left them with a lot of options. What a sensible leader, concerned about his populace’s wellbeing would do, is to reaffirm relations with the Kremlin and provide his people with the warmth they deserve during the upcoming winter.
