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Antonio Manganelli is a Professor of Antitrust and Regulation at LUMSA University in Rome. Andreas Schwab is a member of the European Parliament.
German Chancellor Olaf Scholz said in October that Europe’s energy crisis could only be overcome with “solidarity”. But of late, this solidarity has been in short supply.
Member states have lacked a unified response to rising energy prices and runaway inflation, exacerbated by Russian President Vladimir Putin’s war on Ukraine. And despite the Chancellor’s call for solidarity, a common strategy to tackle the energy crisis is still a long way off.
In particular, Germany’s earlier decision to go it alone with a €200 billion gas price relief fund has caused alarm in Brussels and other European capitals. And Berlin’s longstanding opposition to gas price caps supported by many EU countries meant the eleventh-hour summit in late October offered only a vague roadmap, rather than a decisive deal on how to lower energy prices, sparking economic pain across the bloc. Finally, after long negotiations, they managed to reach a political agreement on the price cap at the end of last year, which will be implemented from next week, from February 15.
Both the energy crisis and the pandemic that preceded it exposed the weaknesses of fragmented governance, which hampered the development of the European single market – one of the bloc’s greatest achievements. Indeed, they illustrate how, even after 30 years, there are significant gaps in the single market that need to be plugged if the EU is to be crisis-proof.
Since Russia annexed Crimea in 2014, there have been several calls for greater integration of the European electricity market, but both practical and political obstacles have left Europe with disparate energy systems connected by insufficient interconnectors. Many member state governments, meanwhile, remain close to their state-owned energy companies and view energy policy as a matter of national security.
However, Putin’s attack has now shone a spotlight on the dangers of such fragmentation, and the EU urgently needs both short-term measures to deal with the energy emergency – such as a financial instrument similar to the SURE plan that cushioned the socio-economic impact of the pandemic – as well as for natural gas. Europe-wide network of buyers and deeper integration of the European energy market.
The EU began, in part, as a power alliance. Still, it has made little progress toward an energy union, which would create many benefits — from increased energy independence to lower prices. Therefore, full integration of the energy sector should be a priority. And without a concerted effort at the supranational level, the risks are clear.
The European People’s Party group, therefore, calls for an integrated energy single market, as without it there is distortionary competition – consumers and businesses in rich member states are relatively protected and those left behind are weakened. This means they may be tempted to follow Hungary’s example and sign their own deal with Gazprom, thus rendering the EU’s embargo policy completely ineffective.
The dangers of an energy crisis also risk other side effects, including rising household energy poverty, de-industrialization of entire sectors, and inequality and fragmentation across European markets.
All this could trigger geopolitical tensions – but it could also destabilize Europe’s competitiveness. And experience in other critical European sectors – most notably telecoms – has amply demonstrated how market fragmentation can undermine economic competitiveness and resilience.
When it comes to telecoms, the EU has, rightly, made the deployment of next-generation technologies a top priority, as achieving Brussels’ digitalization benchmarks could increase GDP per capita by more than 7 percent across the EU. However, despite political will and public funding – on average, member states allocated 26.4 percent of their COVID-19 recovery funds to accelerating digital transformation – the EU still lags dangerously behind the fast-moving regions of Asia and North America.
Critical infrastructure investment is key to achieving the EU’s ambitious digital objectives for 2030 and to cope with the rapidly growing demand for network traffic. Internal Market Commissioner Thierry Breton has already been forced to ask big tech companies to reduce the quality of their audio-visual services, to avoid the collapse of European networks, due to a pandemic-era significant increase in data traffic.
It’s pretty clear by now that European telecom companies can’t afford the investments needed to meet the digital transformation goals set by Brussels – which is why large public EU and national funds have mostly been dedicated to supporting the deployment of high-capacity networks. member countries
Next to public intervention, however, it is also necessary for each market player in the digital ecosystem to play its role.
With this in mind, the Commission is soon launching a public consultation process, which will assess whether all market players contribute to telecoms and digital infrastructure, in order to address the growing user needs. This policy action should aim to create an ecosystem where all play a proportionate and fair role in bridging the infrastructure investment gap.
Additionally, a particular concern is that European telecommunications companies are under greater financial pressure than their foreign counterparts.
The crux of the problem here is the fragmentation of the continent’s telecom market. In fact, while the United States has only a handful of operators covering the entire telecommunications market, the European Union has dozens. For example, in the mobile sector, seven of the nine largest European markets have at least four network-based competitors at national level.
This unsustainable level of fragmentation has put Europe at a considerable disadvantage and weakened the ability of EU companies to invest. At €96.3 per capita, telecom capital expenditure in Europe is clearly lower than investment by Asian giants (€115.4 in South Korea) and US companies (€191.9).
Furthermore, this segmentation has made EU telecom players unable to compete with global digital technology companies and hindered their investment due to extremely intense price competition. In this regard, both competition policy — namely merger control — and previous regulations should be adapted to changing circumstances.
As a similar situation now unfolds in the energy sector, slow progress towards a fully integrated energy market has left member states disproportionately vulnerable. And if we do not seize the opportunity to plug the gaps in the single market, this inequality will only increase, the process of deindustrialization will accelerate and the European Union will lag behind the other major economies of the world.