The European Union welcomes the new year with shadows on its horizon rather than the open. Russia’s war in Ukraine, the consequences of the energy crisis, and skyrocketing inflation, which surpassed 10% in November and will remain high in 2023 despite tightening monetary policy by the European Central Bank (ECB), will push the club towards an economic exit. . stagnation in the first months.
Twenty-seven is a year of major challenges that must follow closely the development of the gas market and initiate electricity market reform to prevent it. Prices continue to pollute the electricity billTo decide how to respond to the subsidy plan announced by the Joe Biden administration to finance the energy transition of the US industry, to fund the Next Generation EU program, and to negotiate a revision of outdated tax rules.
We will have difficult political discussions, but there is room for agreement. “Countries have changed a lot in recent years and have accepted things they would never have accepted a few years ago,” explains Gregory Claeys, an analyst at Bruegel, one of Brussels’ leading economic think tanks.
This situation an upper limit on the gas price of 180 euros per megawatt hour, They drastically agreed by the Twenty-seven (only Hungary voted against, with a few abstentions from the Netherlands and Austria) on 19 December to avoid exorbitant price increases like those recorded last August. A measure that the Commission and many European capitals have resisted for months and will finally come into effect in mid-February.
However, energy will remain one of the biggest challenges in 2023, as prices will remain “significantly” higher than before 2021. “High energy prices are behind high inflation and many of the other economic problems Europe has faced since Russia’s invasion of Ukraine. It will take years for the EU to replace Russian gas,” said Phillip Lausberg, an analyst at the Center for European Policy (EPC). Equally cheap alternatives will be hard to find, so next winter ‘may be harder than this,’ he says. ).
The urgency of electricity market reform stems from this. The Brussels proposal will precede the European leaders’ summit in March in the first quarter of 2023 and will focus on setting prices for marginal technologies such as nuclear or renewable energy, according to initial working papers. It is based on actual production costs, not on the most expensive energy such as gas.
Another of the great debates that will shape the European agenda is Investment plan designed by Washington to fight inflation and their companies’ energy transition (called the Inflation Reduction Act or IRA for short).
A $370,000 million stimulus has triggered alarms in Europe for fears that this doping will undermine Europe’s competitiveness and cause a major corporate exit. For some partners, the solution is for the EU to adopt a similar measure or even a fund for European sovereignty. For others, something like this could reignite tensions and escalate into a trade war. Brussels will present a plan before the end of January and the first response to it should be given at the leaders’ summit scheduled for 9 and 10 February.
“The important thing is not to fall into a situation where investments are made in the United States and not in Europe,” President Ursula von der Leyen said at the last European Council, and she still hopes to initiate specific exceptions for Europe. industry such as car manufacturers.
This is what Berlin and Paris demanded two weeks ago. “If we can’t soften the US stance, we will have to make our own subsidy plan and change our state aid rules. It’s not in our DNA, but it would be naive not to do so,” says Claeys. Despite ongoing negotiations, Lausberg believes that “it is unlikely that the United States will review the main discriminatory elements of the IRA,” which “will require a stronger European industrial policy”.
recovery funds
Beyond the energy crisis and trade relations, 2023 will be a decisive year in the implementation of the recovery funds, which have already paid out 136,000 million euros. The big debate will be fiscal rules reform, which was suspended at the start of the pandemic with the introduction of the general exemption clause, which expires in 2024.
The European Commission has already kicked off the debate on reviewing open and debt rules with a first document that includes ways to reduce debt, tailored plans, greater flexibility and smaller but effective fines.
“It was a pretty revolutionary proposition. But with the war and energy crisis in Ukraine, I don’t know if they’ll have enough time to seriously discuss it,” explains Claeys. According to European sources, the bill could come in March and the discussion could take place in the second half of 2023, with the EU chaired by Spain.