Russia is turning off the gas. Power cuts loom. What should governments do?
Save time by listening to our audio articles as you multitaskis now a full-blown political and economic crisis. Already 14% of families in Britain are behind on their utility bills. ArcelorMittal, a steelmaker, will shut down a plant in Bremen. As consumers and businesses reel and a recession looms, behind the scenes there is chaos in energy markets.
If prices are capped, demand for energy will remain too high, delaying the crucial adjustment that needs to take place to a world where gas is no longer as cheap as it was before Mr Putin launched a war. You can already see the evidence for this: higher prices meant that Germans consumed nearly 10% less natural gas in the first half of this year compared with a year earlier. And it may prove politically impossible to end price freezes once they are in place.
Firms will also need help. In order to avoid a domino effect of collapsing power companies, some may need temporary state credit lines, as banks did during the financial crisis: the cost can be recouped by levies later on. Swathes of other businesses, meanwhile, may find themselves in danger of closing down rather as they were when lockdowns were imposed in 2020. Some may no longer be viable—think of German chemical firms with business models built on abundant Russian gas.
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