Opinion

Hugo Dixon

Gas and bank security have similarities

Hugo Dixon
Sep 8, 2014 09:56 UTC

Europe is currently conducting two stress tests. One is on its energy suppliers, to see how badly they would fare if Russian gas was disrupted. The other is on euro zone banks, to ensure they are strong enough to finance economic recovery.

It is hard to know which of the two is the more important. But it is clear that an effective regime for energy security requires many of the same elements as financial stability.

One is the need for credibility in the stress tests. Europe flunked its original bank assessments by modelling scenarios that weren’t sufficiently stressful. The new test being conducted by the European Central Bank looks more credible.

The European Union is only now conducting its first gas test. Member states last month submitted their results to the European Commission, which is now reviewing them before coming up with recommendations next month. It shouldn’t pull its punches.

Part of the gas test involves checking whether countries have done what they are already supposed to have done to improve security. After gas via Ukraine was disrupted in 2009, companies were told they needed to ensure supplies in the event of a 30-day disruption.

EU’s three big problems all linked

Hugo Dixon
Sep 1, 2014 09:19 UTC

The outgoing president of the European Council, Herman Van Rompuy, said at the weekend that his successor, Donald Tusk, currently Poland’s prime minister, faces three big challenges: the stagnating euro zone economy; the Ukraine/Russia crisis, which he described as the gravest threat to continental security since the Cold War; and the risk that Britain will quit the European Union. The problems are all linked.

Euro zone weakness is one reason the EU is reluctant to take action against Russia. GDP growth, already anemic, ground to a halt in the second quarter. The inflation rate has fallen again, to just 0.3 percent, and the unemployment rate is stuck at 11.5 percent.

With Italy in its third recession in recent years, Germany shrinking and France flat, this is no longer a crisis of what used to be called the “little PIGS” – Portugal, Ireland, Greece and Spain. It might be best to use a new acronym “FIG” to describe the travails of the big three.

How EU can wean itself off Russian gas

Hugo Dixon
Mar 24, 2014 10:10 UTC

European Union leaders at the summit last week made a commitment to cut their dependency on Russian gas. The Ukraine crisis has highlighted the issue: about 30 percent of the gas the EU consumes comes from Russia.

Not that there is any immediate risk of the Kremlin turning off the taps. After all, Russia gets around 14 percent of its entire export earnings from gas it sells to other European countries.

What’s more, the EU is better placed to withstand a disruption of gas supplies than it was in 2009 when Moscow last cut off gas supplies to Kiev. Then 80 percent of Russian gas was routed via the Ukraine, according to the Oxford Institute for Energy Studies. Now it is around 50 percent, largely because of a new pipeline that connects Russia to Germany via the Baltic Sea.