How the scale of Europe’s energy troubles was exposed in a frenzied week

European ministers sounded defiant as they met in Brussels to deliberate on plans aimed at halting the increase in energy prices. “We will prevail,” EU Energy Commissioner Kadri Simson told reporters, even with “a difficult winter ahead of us”.

In reality, defiance may soon give way to desperation. Friday’s meeting in Brussels capped a frenzied week of government activity across the 27-nation bloc, in which it became clear how complex it is to forge a common response to the energy crisis given the breadth of challenges. The refrain was that the clock is ticking for action. That is even more the case after Russia upped the ante slightly over a week ago, when Gazprom cut off gas deliveries to Europe via the Nord Stream pipeline indefinitely.

That sparked another round of budget-straining measures as governments announced additional aid to help people pay their bills. They were also forced to deal with a new financial threat from the crisis. As rising energy prices leave some businesses struggling to find enough cash to meet margin calls, countries announced billions of euros in liquidity funding.

At the EU gathering, consensus remained elusive and solidarity in short supply as ministers sought to agree on measures to support citizens and businesses without wrecking the entire energy market.

Tension bristled over proposed mandatory cuts in power demand and German calls for a mechanism to share any excess supply. Plans for a price cap on Russian gas were met with scepticism and a cap on all imported gas discussed instead. But it is unclear how lower prices could be put in place.

The discord among European leaders was amplified by a growing sense of anxiety over the economic and political fallout from the crisis. In the Czech Republic, which holds the EU’s rotating presidency, the justice minister said the political system was under threat.

In Hungary, Cabinet minister Gergely Gulyas raised the possibility of mass unemployment if key industrial companies are forced to suspend production or shut altogether, creating a domino effect. The biggest concern in France is of a potential new chapter similar to the Gilets Jaunes, or Yellow Vest movement, which will haunt any government for the next two decades, according to a source in President Emmanuel Macron’s administration.

Anything related to purchasing power is highly sensitive in France, and it simply can’t afford to be in a situation similar to that of the UK or Belgium, where energy bills have doubled or tripled, said the source, adding that the government will continue to do all it can to avert such a scenario.

The energy crisis had been building before Russian President Vladimir Putin invaded Ukraine early this year, prompting successive rounds of international sanctions and an EU decision to phase out its dependence on Russian coal, oil and, most difficult of all, natural gas.

After Nord Stream was cut off, German Chancellor Olaf Scholz convened his Cabinet early on Saturday to piece together a third relief package for households and companies.

The negotiations with coalition allies lasted about 20 hours until the early hours of Sunday, when they emerged with aid measures worth €65 billion ($65.6bn), including higher subsidies for poor households and cash payments to students and pensioners.

Mr Scholz also decided to throw Germany’s weight behind EU efforts to put a levy on so-called “windfall profits” of utilities as surging earnings fuel public outrage. Germany has a good chance to pull through this winter “by the skin of its teeth”, he said. A poll later found that voters did not share that optimism, saying the measures were not enough.

According to Bloomberg Economics, Russia’s decision to completely halt gas flows through Nord Stream will raise the euro area’s gas bill by an extra €50bn. That is on top of a €460bn hit from earlier price increases.

All told, the squeeze will exert a drag on gross domestic product of about 2.2 per cent annually, rising to as high as 4 per cent if the winter is unusually cold and there is a breakdown in European unity. Even with government support, the economy is still heading for a recession at the end of the year, said economists Maeva Cousin, Jamie Rush and Martin Ademmer.

Progress is being made. Before the invasion, Europe relied on Russia for 40 per cent of its gas imports. Now, pipeline flows only account for 9 per cent, European Commission President Ursula von der Leyen said this week.

Record imports of liquefied natural gas from Norway, the US and Qatar have helped to offset the gap while LNG infrastructure is rapidly being set up.

But it can’t come soon enough. The talk in Brussels is of the risk of social upheaval. National governments have already earmarked billions of euros, and the energy crunch may run for years. “Burn almost everything,” Poland’s de facto leader, Jaroslaw Kaczynski, told a meeting with voters last weekend, adding that the country needs to “stay warm”.

In one small bit of good news, gas prices declined this week, extending their drop from August records. But they are still eight times higher than normal for the time of year, and extremely volatile. These wild movements are causing huge liquidity problems for utilities as they are asked to put up cash to guarantee their trades.

On Sunday, Sweden and Finland announced a $33bn emergency liquidity facility to help struggling utilities and stave off what Finnish Economy Minister Mika Lintila dramatically called “the ingredients for an energy-industry Lehman Brothers” moment.

It was start of a cascade of government measures. On Tuesday, Finnish utility Fortum received €2.35bn of bridge funding to ensure adequate liquidity. Switzerland granted Axpo a credit line of up to €4bn francs.

The UK Treasury and Bank of England unveiled a £40bn ($46bn) fund for energy traders on Thursday to help to provide market stability. The situation in energy markets has been on the agenda of every meeting of EU leaders in the past several weeks.

Ms von der Leyen brought forward the outline of the commission’s emergency plan but the detail will have to wait for her annual State of the Union speech on September 14. Her credibility depends on success. However, for Europe, it is existential.