When the ECB warns of unwanted side-effects of the proposed price cap on natural gas

by Antonis D. Papagiannidis

Just as the Energy Ministers of the EU “27” were packing their bags to meet in Brussels (December 13) and have one more go at defining some sort of coherent energy policy for Europe – two days later, the European Council will meet in Brussels on December 15/16 to hopefully give its collective blessing to any such deal – a depth charge was dropped on part of the project by no less than ECB President Christine Lagarde. In an opinion bearing the signature of Lagarde, it is said that “proposed EU rules aimed at tempering natural gas price spikes, “many in some circumstances, geopardise financial stability”; so they “would need to be redesigned”.

One may wonder, in what way the ECB feels involved in the issue – indeed how such matters fall within its remit? The answer comes with the claim that “the mechanism’s current design may increase volatility and related margin calls, challenge central counterparties’ ability to manage financial risks and may also incentivize migration from trading venues to the non-centrally steered over-the-counter market”. Which translates, somehow, to an ECB warning: “you may try and manage the energy markets so as to assuage citizens’ worries over the high energy costs – but beware messing with the indirect fallout on financial markets!” – this, addressed to Governments meeting in Council and/or Summit configuration to discuss a controversial Commission proposal.

To add polite insult to injury, the ECB “also asked the Commission to curb its (own)role in the process of activating and ending the price mechanism” for fear of encroaching on its independence and conferring to the Bank a new role (without forthright Treaty change). It is somehow shocking to see the ECB put a brake on the Commission’s own reading of the EU decision-making mechanism on such a sensitive issue, at such a dangerous turn of things.

All of which does not necessarily mean that the proposed price cap on natural gas, meant to introduce a cut-off mechanism to the energy burden experienced by households and businesses, is put on the back burner at the EU “27” next week negotiations. Nor is one entitled to say that the ECB is joining the ranks of the “price-cap naysayers” with Germany, the Netherlands etc. But surely new complications arise with the ECB contribution to the cap debate. So, one may well wonder whether in the present turn of things the temptation will arise for a way out to be sought with a fiscal sweetener to those demanding a price cap as part of the dismantlement of the overall TTF mechanism overhaul.

Which would mean for the EU “27” to acknowledge the mounting pressures borne by less-resilient economies due to the energy crisis – and provide such economies with access to fresh structural funding modeled on the earlier Next Generation EU Fund. A “business-as-usual” approach for Europe not to address the core issue (the destructive TTF mechanism in the overall energy sector) but provide a politically convenient way out (a new EU Fund allowing for a renewed EU Communication campaign).