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Sell-off in tech stocks spreads to private start-ups

Investors in private companies have turned cautious following a boom period of billion-dollar valuations

Shares in start-ups are sinking in private trading as a sell-off in public technology companies and a pause in new listings send shockwaves through Silicon Valley.

Forge Global, one of the largest venues for trading in private start-ups, said the prices of companies on its platform had fallen 19.9 per cent in February and March compared with the fourth quarter of last year.

Zanbato, which operates a dark pool for shares in start-ups, said its index tracking more than 100 of the most widely traded private companies had fallen by 1 per cent during the first quarter this year. The index’s last negative quarter came in mid-2020, when the spread of coronavirus caused turbulence in private markets.

The data suggest investors in private companies are growing cautious following a bumper year of venture capital investment that lifted hundreds of young tech companies to billion-dollar valuations.

Zanbato’s chief executive Nico Sand said the spread between prices sought by buyers and sellers widened during broader market volatility in January and February.

“Since then spreads have come in as markets found new clearing prices, which drove an uptick in trading activity in March and early April,” he said.

The drops match a sell-off in public markets, with the Nasdaq Composite index sliding about 15 per cent this year. Some of last year’s largest public tech listings, such as the Korean ecommerce company Coupang and electric car maker Rivian, have fallen even farther.

Brokerages such as Forge allow employees, investors and other shareholders to buy and sell stock in private companies before they are acquired or listed on public exchanges.

The businesses have grown rapidly during the recent boom in venture capital, as start-up founders have allowed employees to sell shares earlier in the lives of their companies. Forge said it handled $3.2bn in trading volume last year.

Zanbato’s market price for shares in the online conferencing start-up Hopin fell 40 per cent in the first quarter, as the company underwent lay-offs following a period of rapid growth during the pandemic. Investors valued the company at almost $7.8bn in a round of funding announced in August.

The market price for the payments company Stripe fell 4 per cent during the same period, according to Zanbato. Investors valued the company at $95bn in March last year, making it the most valuable private venture-backed company based in Silicon Valley.

Zanbato calculates the index values based on both completed trades and legally binding buy and sell orders entered into its system, giving greater weight to finalised transactions. Stripe declined to comment; Hopin did not respond to a request for comment.

Venture capitalists have slowed their pace of dealmaking this year. Investors sank $70.7bn into deals announced in the US during the first quarter, falling short of the total invested during the same period last year, according to PitchBook data.

However, the amount of venture capital activity remained elevated compared with historical levels, and some investors said they had begun hunting for discounted deals during the sell-off.

“We see this as an opportunity,” said Hans Swildens, chief executive of Industry Ventures, one of the most active investors in private secondary trading markets. “You want to buy when the market is down.”

Several million workers who dropped out of the U.S. workforce during the Covid-19 pandemic plan to stay out indefinitely because of persistent illness fears or physical impairments, potentially exacerbating the labor shortage for years, new research shows.

About three million workforce dropouts say they don’t plan to return to pre-Covid activities—whether that includes going to work, shopping in person or dining out—even after the pandemic ends, according to a monthly survey conducted over the past year by a team of researchers. The workforce dropouts tend to be women, lack a college degree and have worked in low-paying fields.

The research team has named this phenomenon “long social distancing” and believes it will be one of the lasting scars of the Covid-19 pandemic.

“Our evidence is the labor force isn’t going to magically bounce back,” said Nicholas Bloom, a Stanford University economist who oversees the survey along with José María Barrero of Instituto Tecnológico Autónomo de México and Steven J. Davis of the University of Chicago. “We still don’t see any change in these long social distancing numbers, which suggests this drop in labor-force participation may be quite enduring.”

Should the researchers’ predictions turn out to be true—that the labor force will be depressed for potentially years after the pandemic recedes—the implications for the world’s largest economy and the Federal Reserve are substantial. A sharp drop in the labor force at the pandemic’s start led to shortages of workers and products that have frustrated households, restrained economic growth and helped push inflation to a 40-year high.

The labor force has recovered significant ground since March and April 2020, when the pandemic put about 22 million people out of work and the labor force—consisting of both employed workers and job seekers age 16 or older—fell by 8.2 million workers, or 5%.

The ranks of employed workers as of this March were 1.2 million shy of their prepandemic level, recovering faster than economists predicted two years ago. The labor force grew to 164.4 million workers, down just 174,000 from its prepandemic level. The rebound has been particularly sharp in recent months as the winter outbreak of the Omicron variant of Covid-19 faded.

Even with those gains, the U.S. is still missing about 3.5 million workers, by the team’s calculations. That figure represents the difference between the number of workers in March and how many there would be if the labor force had continued to grow at the pace it did from 2015 to 2019, absent the pandemic.

And their research suggests progress could soon stall. If so, the labor force would remain depressed for longer than the Fed anticipates, potentially helping to keep inflation high.

Chuck Lage, 63 years old, is among those who lost their jobs in the first two months of the pandemic in spring 2020. The Landenberg, Pa., resident was laid off from his position as a director of business planning for a nonprofit professional association.

Mr. Lage has common variable immunodeficiency, or CVID, a genetic condition that prevents his body from producing antibodies to fight illnesses. Worried about getting sick, he retired early and has avoided almost all of his prepandemic activities such as going out to eat and socializing. He plans to continue doing so for the foreseeable future.

Through a Facebook group for people with his condition, he learned that there are many people like him. One recent member posted a picture of a zebra—an animal that people with CVID have adopted as a sort of mascot—sitting in a car looking out the window.

“The world is moving on,” Mr. Lage said. “We’re not able to yet.”

The fate of people such as Mr. Lage is at the heart of one of the economy’s biggest puzzles: whether certain adults will re-enter the labor market as the pandemic fades. Employers have struggled to find workers to meet strong consumer demand and have bid up workers’ wages as a result, one of several factors that pushed inflation to a four-decade high of 8.5% in March.

For each month over the past year, the team has anonymously surveyed 5,000 people—not always the same ones—age 20 to 64 who earned at least $10,000 in the prior year. The survey asked whether they plan a full, partial or no return to normal activities after the pandemic. Consistently, 1 in 10 have said they plan no return. In the early months of this year, when the Omicron variant was surging, that share rose to 13%.

After controlling for work status—some of those people were working remotely—and other variables such as age and gender, the team concluded that roughly three million people are staying out of the workforce to remain socially distant. The team didn’t ask health details such as whether those people have “long Covid,” to avoid health-privacy concerns.

Other data suggest that fear of Covid remains an issue for some workers but has fallen from higher levels earlier in the pandemic.

The Census Bureau has surveyed adults throughout the pandemic, asking among other questions whether they didn’t work in the past week because they were afraid of getting Covid or spreading it.

That figure peaked at above six million early in the pandemic, fell sharply a year ago after vaccines became widely available and remained around three million for much of 2021. In mid-March 2022, the figure fell to 2.3 million from three million in February.

Household savings rose to record highs over the pandemic as the federal government distributed stimulus checks and enhanced unemployment benefits. Some economists think that sidelined workers will rejoin the labor force to cope with the surge in inflation as they spend down savings.

The Fed is counting on a further pickup in labor-force participation as it attempts to bring inflation back down to its 2% target over the next two years without extremely aggressive rate increases. The hope is that a larger labor pool will alleviate the pressure on employers to raise wages at a pace that the Fed considers unhealthy in the long run.

The number of people looking for work has been slow to respond to strong demand for workers “for reasons that appear to be clearly related to the pandemic,” Fed governor Lael Brainard said in an interview at the recent WSJ Jobs Summit. “But what has been encouraging in the last few months of the employment reports is that we are seeing a rebound in participation.”

Fed officials have signaled plans to raise interest rates relatively quickly this year to a level closer to an estimated neutral setting that doesn’t provide any economic stimulus. Ms. Brainard, who is awaiting Senate confirmation to serve as the Fed’s vice chairwoman, cited the potential for an increase in workforce participation as a tailwind that could reduce the need for more-aggressive interest-rate increases, which otherwise would be needed to bring supply and demand into better balance.

“I expect those supply constraints to lift at the same time as we see demand moderating, and that is why we can expect to see the recovery sustain, even as we bring inflation down,” she said.

Fund manager, startup founder, blogger: Eva Shang is cracking the private debt market. The $400 million she raised in six months says Wall Street is taking notice.

Eva Shang is doing the hedge-fund thing her way. That means making money but also making time to blog about dreams, her labradoodle and her fear of becoming a Silicon Valley has-been at age 26.

Legalist Inc., Ms. Shang’s technology-powered investment firm, raised about $400 million in the past six months. Its funds focus on private debt, a hot patch of Wall Street populated mostly by men with pedigrees from top investment banks and private-equity firms.

Ms. Shang and fellow Harvard University dropout Christian Haigh launched Legalist with a splash in 2016 when she was 20, then struggled for years to attract backers.

“I don’t blame them,” Ms. Shang said about the investors who swiped left on Legalist. “If I were an allocator, there would be no reason to take a 20-year-old dropout with a computer seriously.”

Now, Legalist’s flagship strategy of litigation finance—where fund managers back plaintiff lawsuits in exchange for a percentage of court-awarded judgments—has a record of gross annual returns around 25%, people familiar with the matter said. Insurers and endowments are buying into its funds, which manage $665 million, and the San Francisco-based firm has expanded into corporate bankruptcy loans and lending to government contractors.

Ms. Shang had no formal investment training before starting Legalist, doesn’t own a suit or a car and lives in a shared house with four other startup founders where her wardrobe leans heavily on jeans and Patagonia jackets. Her big splurge last year was on the labradoodle she named General Partner, a legal term often used to describe a hedge-fund founder.

In her off time, Ms. Shang volunteers with a local Girl Scout troop, helps high-school seniors with college applications and travels to Boston to visit her sister and mother. She also writes a blog, for a subscribership of about 60 friends and colleagues, and science-fiction stories for herself.

“She’s an interesting kind of smart,” said Dominique Mielle, a former hedge-fund manager who sits on the company’s advisory board. “I get the sense that she reads a lot and is able to seize on very difficult issues and boil them down to a few simple questions.”

Ms. Shang recruited Ms. Mielle by contacting her on LinkedIn after reading her memoir about navigating the hedge-fund industry’s notorious gender gap.

Some question Legalist’s claims of innovation in litigation finance. The firm advertises its proprietary artificial intelligence built to comb through public court databases and identify cases with a stronger chance of winning.

“[There’s no] technology we’ve tested, or that a tech shop has even approached us with, that could help us to price risk in a way that would enable us to make a successful litigation-financing decision,” said David Perla, co-chief operating officer of Burford Capital Ltd. , a large litigation-finance company.

“You can’t invest based just on the tech,” Ms. Shang said. Legalist’s algorithms help it find better deals faster but, like its competitors, the company employs human “underwriters” to ultimately decide whether to invest in a case, she said.

About 80% of the lawsuits Legalist backs end up winning, according to Ms. Shang. The average success rate in litigation finance is 65%-75%, said an industry executive.

“We don’t know whether [their AI] works or not,” said an investment adviser who has recommended Legalist to some clients. “There are positive indicators from their track record that the mousetrap is able to catch the mice.”

Ms. Shang emigrated to the U.S. from China at age 3 and grew up mostly in a Philadelphia suburb where her mother supported the family working as an actuary. Ms. Shang began proofreading her mother’s résumés at age 7, she said, and helped care for her younger sister, Melissa Shang, who has a form of muscular dystrophy and uses a wheelchair.

In 2013, the year she started at Harvard, Ms. Shang helped her sister petition toy maker American Girl to make a doll representing disabled children. Melissa Shang is now a Harvard undergraduate and a disability activist.

The American Girl campaign turned into a TEDx Talk, which connected Ms. Shang to Mr. Haigh, an engineer with a knack for scraping online databases. They became friends and decided to scrape the poorly organized Massachusetts online court system using a jury-rigged network of used Apple computers, hoping to repurpose the data and sell it.

Ms. Shang didn’t fit into Harvard’s culture of exclusive social clubs, she said. She and Mr. Haigh dropped out and moved to San Francisco in 2016, when they raised their first $1.5 million by making it into startup accelerator Y Combinator. An adviser at the accelerator suggested they use their database for litigation finance, an idea the pair spent a year marketing to mostly uninterested investors before raising their first $10 million fund.

The duo also received a $100,000 grant in 2016, from Peter Thiel, who that same year financed litigation against Gawker Media. The grant was part of Mr. Thiel’s program to fund startup founders who leave school and gave him no stake in Legalist.

Since then, Legalist has developed a business model of scraping new databases to repeatedly identify niche markets. The firm’s staff of about 50 is fully remote, something that helps it attract talent that wouldn’t normally work for a hedge fund, Ms. Shang said.

Bankrupt companies that Legalist lent to include Maryland-based landscaping company Moon Group Inc. and Buyk Corp., a New York-based grocery-delivery service, according to court documents. The firm is working on a loan this year to a pilot-training company that won a contract from the U.S. Navy, Ms Shang said.

Legalist’s growth plan is to keep using its data to find trades overlooked by hedge funds staffed by more conventional finance professionals, the firm’s adviser Ms. Mielle said. “No one else is going after that market,” she said.

Achievement and identity feature prominently in Ms. Shang’s blog, where she discusses her anxiety that she won’t live up to her early promise. “I’m reminded that the world I inhabited is quickly being replaced by one in which I am no longer a Young Person and instead have to compete in the grown-up’s lane,” she wrote in a post last year.

Her self-reflection is one more thing that sets Ms. Shang apart, said David Lee, a venture-capital investor and one of her earliest backers.

“The ability of founders to write well and to express themselves correlates highly with their ability to lead and manage people,” Mr. Lee said. “There are a lot of great writers that are founders, but not that many are beautiful writers. She is.”

Complaints to food regulators rise; the agency hasn’t issued a recall for the popular children’s cereal

Food and Drug Administration officials said they are examining reports from more than 100 consumers who told the agency that they got sick after eating Lucky Charms cereal recently.

The reports come after thousands of people have complained on a consumer website, saying they have experienced nausea, vomiting and diarrhea after eating Lucky Charms.

“The agency is currently reviewing and investigating these reports,” an FDA spokeswoman said.

General Mills Inc., GIS 0.34% which makes the cereal, said it is working with the FDA on the matter. The company said it conducted a thorough internal investigation that found no evidence of illnesses linked to the consumption of Lucky Charms. “We encourage consumers to please share any concerns directly with General Mills,” a spokeswoman said.

General Mills and the FDA haven’t issued a recall of the cereal, which is one of the company’s top brands.

“The FDA takes seriously any reports of possible adulteration of a food that may also cause illnesses or injury,” the FDA spokeswoman said.

It’s rare for people to get sick from eating breakfast cereal because cereal is baked, which typically kills pathogens, food-safety experts have said. Cereal can be contaminated after it is baked, when the puffs are glazed with a sugary coating, for example, or when it is packaged.

Patrick Quade, founder of the consumer website iwaspoisoned.com, said that so far this year his site has received nearly 2,500 reports from people around the country who said they got sick soon after eating Lucky Charms. The vast majority of the reports have come in over the past two weeks, and they amount to the most complaints the decade-old website has ever received for a single product, he said.

Consumer reports of Lucky Charms-linked illnesses to the FDA jumped over the past week following news articles by the New York Post and USA Today about the complaints to Mr. Quade’s website.

Some consumers who reported their illnesses to Mr. Quade’s website and the FDA told Mr. Quade that the FDA has contacted them about testing of their cereal, he said. The FDA declined to comment.

Kristin Johnson, who lives in Lexington, Ky., said she fed Lucky Charms to her two-year-old daughter about a week ago, and her daughter got sick for a few days. “When she started feeling better, I gave her Lucky Charms because I thought that was something she would eat since it’s her favorite treat. And she got sick again,” Ms. Johnson said.

General Mills declined further comment.

In recent years, consumer advocacy groups have called the FDA slow in reacting to foodborne illness outbreaks. The FDA last month received complaints from Consumer Reports, the Center for Science in the Public Interest and other organizations about its handling of a recall of contaminated infant formula earlier this year after two babies died.

The FDA has said it can’t comment on the timeline of the infant formula recall but that it will conduct a review once the outbreak investigation is over. In December, the agency said it had expanded its rapid response team to help solve outbreaks faster.

In 2018, a salmonella outbreak traced to Kellogg Co. ’s Honey Smacks cereal sickened at least 135 people in 36 states. An investigation by food regulators found that the factory Kellogg had contracted to make Honey Smacks had unsanitary conditions. Regulators said the owners of that factory, Wisconsin-based Kerry Inc., had found salmonella on production lines and in a cereal-coating room. At the time, Kellogg said it stopped contracting with that factory to make its cereal, and Kerry said it improved equipment sanitation and enhanced training.

Cereal can also get contaminated by packaging. In 2010, Kellogg recalled 28 million boxes of Froot Loops and other brands after consumers complained of the taste and smell, and some people said they got sick after eating it. Kellogg said it found that the problem was elevated levels of a food packaging substance in the cereal box lining.

China views Russian invasion as a ‘strategic utility’, says ex-Australia PM

Kevin Rudd believes Ukraine conflict serves as a distraction that allows Beijing to focus on US

China will welcome a prolonged war in Ukraine as a “rolling strategic diversion” from its own assertiveness, according to former Australian prime minister Kevin Rudd, and exploit a distracted west to focus on its competition with the US.

Western nations have imposed economic sanctions on Russia and supplied Ukraine with weapons following President Vladimir Putin’s invasion in February. China has refused to condemn Russia’s belligerence, drawing accusations that Beijing supported Moscow’s invasion.

Rudd, a Mandarin speaker who cultivated Australia’s relationship with China during his tenure as prime minister between 2007 and 2010, said the importance of its ties to Moscow meant that Beijing would “not distance itself from Russia” under President Xi Jinping.

“Too many Chinese strategic interests rely on the Moscow relationship, to do with the stability of their own border with Russia; the fact that China doesn’t want to focus on a Russia problem, but focus on the United States regionally and globally; and the fact that China sees strategic utility in Russia being a rolling strategic diversion for the Americans, the Middle East, north Africa and Europe,” Rudd told the Financial Times in an interview.

“China sees Russia as a reliable long-term source of coal, gas, oil, grain and other commodities.”

Rudd, who is a member of the opposition Labor party, said Australia faced “a difficult challenge with the rise of China” because it was the country’s biggest trading partner, accounting for more than a quarter of two-way trade, according to government figures.

Deteriorating diplomatic relations have spilled over into trade in recent years, with China imposing levies or informal bans on Australian coal, wine, beef and barley.

Rudd defended the Aukus security pact announced last year between the UK, US and Australia, saying the trilateral defence agreement, which was signed by Liberal party prime minister Scott Morrison, was a natural response to China’s growing military assertiveness.

“Let’s be very plain about it: China has been in the business of expanding its military expenditure, its investment in blue-water capabilities, offensive weapon systems, expansion of its nuclear arsenal, a thousand new land-based nuclear silos, together with testing hypersonic weapons,” Rudd said.

Richard McGregor, a senior fellow at the Lowy Institute think-tank, said he “broadly” agreed with Rudd’s assessment of China’s view of Russia.

McGregor said the “no limits partnership” between Russia and China, announced in February was “two decades in the making” and would not be “unwound quickly”.

“The Chinese system was squirming in trying to formulate a response after the initial invasion [of Ukraine], but it’s pretty clear now they are standing right behind Russia,” McGregor said. “And the best indication is all the official propaganda is focused on blaming the US.”

In his new book, The Avoidable War, Rudd argues that war between the US and China is an increasing possibility, but can be avoided by “managed strategic competition”.

That would involve setting clear geopolitical “red lines”, competing in “non-lethal” areas such as trade, foreign policy and ideology and co-operating on issues including climate change, public health and global financial stability.

The origins of the war in Ukraine lie in Russian economic stagnation, corruption and the leader’s dwindling popularity

The fact that Vladimir Putin invaded Ukraine at huge economic cost to Russia does not mean the economy does not matter to him. On the contrary, economic performance — or, rather, underperformance — played a key role in his decision. As he could no longer deliver income growth, or at least convince Russians the economy is doing better than it could otherwise, he tried to replay the 2014 Crimea scenario. This might have worked but he miscalculated.

Putin’s aggression has brought material devastation and human tragedy to Ukrainians. But the war has also destroyed Russia’s economy. In 2022, Russian gross domestic product will shrink by at least 11 per cent — the worst recession since the early 1990s. Why did he start this war?

The political scientist Adam Przeworski once wrote that the authoritarian equilibrium rests on economic prosperity, lies or fear. Like most 21st-century “spin dictators”, Putin originally eschewed fear. In his first decade in office, he presided over a period of fast economic growth, driven by rising oil prices and economic reforms in the 1990s and early 2000s. This prosperity brought him genuine popularity.

However, as Putin’s centralisation of power promoted corruption and stifled competition, his economic model lost steam. After the recovery from the global financial crisis, Russian GDP growth slowed almost to zero. As incomes stopped growing, Putin’s popularity declined substantially as well. According to the independent Levada Center, Putin’s approval rating decreased from a peak of 88 per cent in September 2008 to the low 60s in late 2013.

Putin decided to address an economic problem with a non-economic solution. Annexing Crimea in 2014 did boost his popularity, probably beyond his expectations. Levada Center polls showed that Putin’s approval went back to 88 per cent in just a few months.

However, the Crimea effect faded away. As Putin’s governance model is incompatible with economic growth, Russia’s economy continued to stagnate. Despite repeated promises of reforms, investment did not take off, capital kept fleeing the country and Russia fell further behind developed countries. Putin’s corrupt model protected his proxies at the expense of ordinary Russians. In 2019, Russian GDP was 6 per cent above its pre-Crimea level, but real incomes of Russian households were 7 per cent below their 2013 peak.

Putin then turned to Przeworski’s second pillar of authoritarianism: lies. Russia’s government intensified censorship and propaganda. Putin tried to convince Russians that their stagnating living standards were better than any potential alternative. However, this narrative was increasingly hard to spin as younger Russians evaded propaganda and circumvented censorship through social media. By April 2020, Putin’s approval fell to a historically low 59 per cent. He responded by poisoning and imprisoning opposition leader Alexei Navalny, cracking down on independent media and closing the Memorial human rights group. Even this did not help the dwindling enthusiasm for his rule.

Running out of options, Putin returned to his 2014 recipe — hoping that a short victorious war would once again raise his popularity despite the lack of economic success. This time, however, he gravely miscalculated. He overestimated his military strength, under-appreciated Ukrainians’ courage and will to defend their country, and did not expect the unity and resolve of the western response. Dictators are prone to making such mistakes, especially those who, like Putin, eliminate critics, suppress independent media and stifle debate in and outside the system. Surrounded by yes-men, Putin was bound to become overconfident — and to launch a war which was neither short nor, at least so far, victorious.

The consequences of Putin’s aggression are catastrophic for Russia’s economy and deadly for Russian politics. Before the war, he was a spin dictator, pretending to be a democrat and relying on money and manipulation of information. Once he saw that 2022 is not 2014, he moved to Przeworski’s third pillar: fear. A week after the war started, he closed down the few remaining independent media and introduced wartime censorship.

Borrowing from Adolf Hitler, he now refers to antiwar protesters as “national traitors” and threatens to “spit them out like a fly”. Putin’s regime has completed its reversion from a 21st-century spin dictatorship to a 20th-century dictatorship based on fear. Unfortunately, this is what Russia will look like until he is gone.

Subsidies and tax cuts worth €80bn in 4 countries seen as ‘terrible economics’ that will not reduce consumption

The four biggest EU countries have announced more than €80bn of measures to shield consumers and businesses from soaring energy prices exacerbated by Russia’s invasion of Ukraine — but economists warn many of these measures could prove counterproductive.

Germany, France, Italy and Spain have responded to the surge in energy prices by announcing plans to cut taxes or to fund rebates on fuel, electricity or natural gas, in an attempt to shield their economies from surging costs for companies and a drop in consumers’ disposable income.

Yet by softening the blow of higher energy prices, governments may aggravate the problem by reducing the incentive for households and businesses to reduce their consumption of electricity and fuel, while making it harder to wean off their dependence on Russian fossil fuels.

“This is terrible economics,” said Rüdiger Bachmann, economics professor at the University of Notre-Dame. “You want the price mechanism to have its effect, by signalling that a good is scarce, so people decide if they want to change their behaviour.” 

Many European countries are transferring money to vulnerable groups to help them cope with higher consumer energy prices, which have risen 45 per cent in the eurozone in the past year mainly as a result of tighter supplies. The Bruegel think-tank found only three of the 25 countries it assessed were not making such payments.

But Bruegel found that 17 countries were also cutting taxes or duties on energy, while 10 countries were regulating retail energy prices and three were regulating wholesale prices.

The French government has gone further by capping the increase in household electricity bills. EDF, the French state-owned energy group, estimated the cap would reduce earnings by €10bn when combined with a requirement to sell its nuclear power below wholesale rates.

“The subsidy on household energy is crazy — it reduces the incentive to reduce energy consumption,” said Klaus Adam, economics professor at the University of Mannheim. “Give everyone an amount each month and let them decide if they want to use it to pay the higher gas prices or if they want to save energy consumption and spend it on something else.”

Veronika Grimm, a member of the council of economic experts which advises the German government, criticised the latest package of measures announced by Berlin last week to help businesses with high energy prices.

The package will include “a time-limited and narrowly defined cost subsidy” for companies whose electricity costs have at least doubled since last year. “It is very unfortunate to subsidise the use of fossil fuels by directly subsidising energy consumption,” Grimm told Die Welt newspaper. “Ultimately, this keeps the gas price high on the exchanges.”

As part of Spain’s €16bn “shock plan” to address the fallout from the Ukraine conflict, it plans to cut fuel price costs in an attempt to defuse an unofficial transport strike that started last month. Spain is also working on a new scheme with Portugal to cap gas prices.

France last month announced a scheme to give a €0.15-per-litre rebate on fuel for four months from this month, while Germany’s €16bn plan to help households include a three-month cut in fuel prices by €0.30 per litre for petrol and €0.14 for diesel. Italy said in February it would spend about €6bn to help cut levies on energy bills, after already spending about €10bn trying to reduce consumer power costs.

By keeping demand high, economists say such measures could undermine an EU-led push to transition away from Russian energy imports. Brussels recently agreed a ban on Russian coal imports from this August and is debating a similar embargo on oil imports while working towards a plan to cut gas imports from the country by two-thirds over the next year.

Germany is resisting calls for an immediate EU embargo of all Russian energy imports. Five German economic institutes warned recently that such a move would cause a major recession in the country, sending output down 2.2 per cent next year and wiping out more than 400,000 jobs.

Lower household energy usage could be a key part of this shift away from Russian imports. “Household gas consumption offers substantial savings potential, for instance in heating, at a low economic cost,” said Katharina Utermöhl, senior economist at Allianz.

If all German households cut their room temperature by three degrees during colder months, Utermöhl estimated it would lead to a savings in gas consumption equivalent to the amount used by the country’s basic metal and food products sectors, which employ about 1mn people.