By Paul Homewood
Europe is gripped by one of the worst energy crunches in history, forcing politicians to step in as soaring prices threaten to leave millions of households unable to pay their bills.
But with market forces signalling that the crisis will last way beyond the winter, the dilemma facing leaders is that their stopgap measures are unlikely to be enough.
The cost of electricity and gas across the continent already looks like one of the biggest challenges facing nations as they navigate their way out of the pandemic.
Ministers in the five biggest European economies – Germany, the UK, France, Italy and Spain – have so far come up with a patchwork of grants and time-limited tax cuts to help consumers heat and power their homes.
Indeed, the common thread seems to be to hope the problem goes away while also leaning more on companies.
Electricite de France shares plummeted by a record on January 14 as the French government confirmed plans to force the company to sell more power at a hefty discount.
Gas more than tripled last year and energy companies, analysts and traders all say that high prices are set to persist, already a key driver of now rampant inflation.
Contracts have eased from their peak, yet the weather may still get colder. There is also mounting tension with Russia over a possible invasion of Ukraine, which could disrupt vital supplies.
“The scale of the crisis makes government measures insufficient to cover all impacts across the economy,” said Simone Tagliapietra, a fellow at European economic think tank Bruegel.
“The longer this situation persists, the more governments will be forced to target their support towards specific segments of society – a difficult triage, both economically and politically.”
Bank of America estimates European households will pay an average of 54pc more for energy this year than in 2020, with the biggest increases in the UK and Italy, where average yearly bills are set to jump by more than €875.
Assistance deployed so far also reflects the different political cultures: Bank of America reckons that plans announced so far include an annualised €337 per household in Italy, more in France and yet zero in the UK.
The trouble is that it all comes as governments need to tighten their belts after almost two years of state largess to protect businesses and workers through Covid-19.
They also have to balance the impact of state intervention on the energy companies they are relying on to deliver on ambitious national climate goals to phase out carbon emissions.
Then there are the more acute political implications coming to a head in April.
French President Emmanuel Macron faces an election, while the squeeze on the cost of living in the UK is set to tighten with an increase in the energy price cap, adding to the turmoil engulfing Prime Minister Boris Johnson.
The UK government is examining ways to help domestic consumers by expanding grants and discounts to pensioners and low-income households, and industry proposals for loans to delay some of the jump in costs coming in April.
Mr Johnson has said a cut in value-added tax on bills is too blunt an instrument.
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