Spanish PM urges EU to cut energy costs or be Putin’s ‘hostage’
Sánchez tells the FT that bloc faces emergency and must increase independence from Russia
Spain’s prime minister has said EU leaders must act to bring down energy prices to stop Europe becoming the “hostage” of Vladimir Putin and limit the economic damage caused by the war in Ukraine.
In an interview with the Financial Times, Pedro Sánchez said a summit starting on Thursday had to help Spain and other countries struggling to cope with big increases in fuel and electricity prices, as well as those that sought to reduce their dependence on Russian gas.
“If the EU does not give us tools to respond to this energy emergency, it will be difficult for not just Spain but for all member states to bear the enormous economic cost,” Sánchez said, referring to Madrid’s call for electricity and gas prices to be decoupled — which would significantly reduce bills in Spain.
Moscow had sought to keep European energy prices high by keeping gas reserves low last year as part of a prewar strategy, Sánchez argued. “We have to defend our fellow citizens; Europe cannot be an energy hostage of Putin,” he said. “We have to increase our energy independence at the same time that we adapt our price system to a new reality.”
“If industries are slowing their production, it is not because they have a problem with demand, it is because they have energy costs that are absolutely unbearable,” said Sánchez, highlighting problems in Spain that range from heavy industry — where steelmakers have idled operations — to “fishing fleets that cannot fish”.
The Spanish prime minister will have to overcome significant opposition from northern EU states to his plans for changes to the union’s electricity market.
At present, European Commission proposals due to be released on Wednesday deal almost exclusively with gas storage — which Brussels sees as the lowest common denominator that can command support among the EU’s 27 member states.
Sánchez was speaking on Monday before flying to Paris and Brussels to see French president Emmanuel Macron, Belgium’s prime minister Alexander De Croo, European Commission president Ursula von der Leyen and Charles Michel, president of the European Council, to try to win round EU opinion ahead of the summit.
He faces mounting pressure at home. Tens of thousands of farmers protested against high energy prices in Madrid on Sunday while an unofficial truckers’ strike is in its second week.
Spain is particularly sensitive to electricity price shifts because around a third of all households pay tariffs linked to spot market rates, which means bills have been high for months.
The Ukraine war has vastly complicated Spain’s efforts to recover from the economic damage wrought by the pandemic, even though Sánchez insisted the country would soon feel the benefit of the EU’s recovery fund, with an “unprecedented” total of €24.6bn in projects due to be put out to tender in the first half of this year.
The Socialist leader is betting that a deal on energy at this week’s summit will provide the basis for his government’s own response to the energy crisis next week, in negotiation with business, unions and other political parties.
“Europe cannot allow the summit to end without an agreement; we need measures and we need them now,” he said. “The [economic] impact [of the war] will be greater or smaller depending on Europe’s response to the crisis.”
Spain wants to decouple electricity from gas prices by pausing or scrapping the EU’s marginal pricing scheme, which sets rates based on the last unit auctioned to allow the market to be fully supplied. This means the soaring cost of gas has driven electricity prices since last year.
Some 45 per cent of Spain’s electricity last year came from renewable energy compared with just a third as much from gas, Sánchez said. “It’s not logical at all that it is this 10-15 per cent of gas that sets the electricity price for the whole market.”
At recent meetings of EU ambassadors countries including Germany, the Netherlands and Austria have played down expectations of a deal at the summit. Critics argue that the changes Spain seeks could undermine incentives for investing in renewable energy and damage the drive for energy independence from Russia in the longer term.
Criticising what he called “market fundamentalists”, Sánchez argued the EU should separate the need for short-term relief from longer term reforms.
Spain has already announced €10bn-€12bn of energy subsidies but Sánchez characterised this as neither sufficient nor sustainable without EU action to curb prices.
The prime minister argued that Spain, which accounts for just under a third of the EU’s liquefied natural gas storage capacity, could help the rest of the continent bolster its energy independence if connections to France were improved. He said this was part of Spain’s “great opportunity after the UK’s exit from the EU to position itself as one of the principal actors” in the bloc.
But Spain’s relationship with its biggest gas supplier, Algeria, was strained when he implicitly backed the claims of Algiers’ regional rival, Morocco, to the disputed western Sahara region late last week. Algeria has now withdrawn its ambassador to Madrid.
Sánchez’s move has been criticised not just by Spain’s opposition but by the radical-left Podemos grouping, the junior partner in his government. Podemos politicians have also been at odds with Sánchez over Spain’s decision to arm Ukraine against Russia.
The prime minister acknowledged what he described as a “discrepancy” with Podemos on defence but added that “most Spanish citizens understand . . . that peace has to be defended”.
He added: “Putin has tried throughout all these years to weaken the European project . . . And now, in Spain and in Europe, a new European identity, a new European patriotism, is being built . . . This is what Putin wants to put at risk.”