Wednesday

1st Dec 2021

Lagarde urges EU to use market power to fix gas price

  • Christine Lagarde said inflation may be higher because of gas prices, but expects inflation to go down next year (Photo: Council of the EU)
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European Central Bank (ECB) president Christine Lagarde on Monday (27 September) said inflation may be above the two-percent inflation target for the remainder of this year, at her quarterly meeting with MEPs from the economics committee .

Inflation hit three percent in Europe recently, with rising energy prices and higher costs for materials due to supply delays named the most important causes.

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Lagarde said there is "every reason to believe" that the rebound in energy prices and supply bottlenecks would ease next year.

When pushed on the risks of higher energy prices by Eva Kaili, S&D MEP, Lagarde confirmed that energy prices are an inflation concern, and could raise inflation to a somewhat higher level in the medium term.

But having said this, she pointed out that energy prices are mainly determined by factors outside of the ECB's monetary mandate.

"Less wind resulted in less energy generation by wind farms," she said. In addition, heatwaves in the south of Europe also played "a key role in higher energy prices."

She added that "fiscal authorities" (ie governments) have a responsibility to "harness market power" to arrange better prices and referred to a plan "one of the member states" recently put forward that might "rebalance other market forces."

Although not mentioned by name, Spain has led recent calls for the EU to organise a more coordinated response to the energy price spikes.

"We urgently need a European policy menu predesigned to react immediately to dramatic price surges," Spain's economy minister Nadia Calvino and energy and environment minister Teresa Ribera wrote in a joint letter addressed to the commission.

They asked the commission to restrict the participation of certain traders in the EU carbon market, warning of the risk that "financial speculation rather than real factors drives prices up too quickly".

In the letter sent on 21 September, the ministers also called for establishing a centralised European platform to buy gas, countering the bloc's exposure to fluctuating international markets.

The commission confirmed it had received the letter and said it would reply in due course.

On 22 September, energy commissioner Kadri Simson told a press conference that the EU has to lessen its dependence on imported fossil fuels - half of which comes from Russia.

"Today's situation underlines that we have to end our dependence on foreign volatile fossil fuels as soon as possible."

Although no specific policy measures have been announced to address this issue, the commission has said it will devise a "toolbox" for member states to address price surges.

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The 29 September historic high of $1,000 per thousand cubic metres for natural gas is not likely to be the final one this year, as European economies are still in desperate need to fill their storage facilities before winter.

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