Energy Crisis Sparks 'Lehman Shock'... Europe Takes Emergency Intervention (Comprehensive)

(Photo by AFP)

[Asia Economy reporters Yujin Cho and Byunghee Park] Russia's announcement to indefinitely halt gas supplies to Europe has intensified the energy crisis among European Union (EU) countries. There are even warnings among European nations that this crisis could escalate into a 'Lehman Brothers event' in the energy sector. Governments of major countries such as Sweden, Finland, and Germany have launched emergency interventions, including measures to secure tens of trillions of won in urgent liquidity.

According to Bloomberg News on the 4th (local time), the governments of Sweden and Finland announced that they had decided to provide a total of 33 billion euros (approximately 44 trillion won) in emergency liquidity to energy companies on that day.

Mikael Damberg, Swedish Minister of Finance, Prime Minister Magdalena Andersson, and Erik Teden, Head of the Financial Supervisory Authority, are answering questions at a press conference held on the 3rd (local time) in Stockholm, Sweden. On this day, the Swedish government announced that it will provide liquidity worth hundreds of billions of kronor to power companies. (Photo by AFP) [Image source=Yonhap News]

◆ Sweden and Finland inject 44 trillion won in emergency funds = The Swedish government announced a plan to provide credit guarantees worth up to 23 billion euros (about 31 trillion won), citing concerns that "energy companies could fall into technical default."

Swedish Prime Minister Magdalena Andersson warned, "As energy companies continue to lack the collateral required for electricity trading, in the worst case, this could escalate into a global financial crisis." Swedish Finance Minister Mikael Damberg also expressed concern, saying, "Although the issue is currently limited to energy, failure to respond could lead to contagion into other financial markets."

The Finnish government also announced emergency support measures, warning that the Russia-induced electricity price shock could expand beyond energy into a financial crisis.

Finnish Minister of Economic Affairs Mika Lintil? referred to the domino collapse of U.S. banks during the 2008 global financial crisis, warning, "All the elements are in place for a Lehman Brothers crisis to be triggered in the energy sector." The Finnish government promised loan and guarantee support worth 10 billion euros to state-owned energy companies. Finnish Prime Minister Sanna Marin described this as "a decision to protect companies essential to social functions."

Concerns are growing inside and outside the market that energy companies' liquidity will worsen due to soaring collateral requirements, creating a vicious cycle of further energy price surges. Adam Berman, Deputy Director of EnergyUK, a UK trade organization, said, "UK energy companies are closely monitoring liquidity conditions this winter," adding, "It should be noted that the energy market is not designed to cope with the rapid market volatility experienced in recent months."

Jean-Fran?ois Lambert, founder of Lambert Commodity, said, "The crisis is moving to the next stage. If one major energy company collapses, a domino effect could cause others to fail sequentially."

◆ Germany to collect ‘windfall tax’ to fund energy subsidies = Germany, suffering from soaring energy prices, has proposed a plan to support ordinary citizens by imposing a so-called ‘windfall tax.’

The German coalition government led by Chancellor Olaf Scholz announced the adoption of the ‘third inflation relief package’ after an 18-hour marathon negotiation. The plan involves imposing a windfall tax on energy companies that have earned huge profits from rising oil and natural gas prices to provide 65 billion euros (about 88 trillion won) in support to ordinary citizens.

In an interview with ZDF, Chancellor Scholz said, "We will collect tens of billions of euros in taxes from energy companies that have made profits above a certain threshold to support ordinary people." He emphasized his confidence that Germany will not experience a large-scale blackout.

Previously, the German government announced two rounds of household support measures, and including this 65 billion euro support, the total government aid now amounts to 95 billion euros (about 129 trillion won).

◆ EU considers suspension of electricity derivatives trading = On the 2nd, Russian state-owned company Gazprom announced the indefinite suspension of the Nord Stream 1 gas pipeline over the weekend. This is seen as a countermeasure to the G7 finance ministers' agreement to implement a price cap on Russian crude oil. Following the G7, the EU is also considering introducing a price cap on Russian crude oil.

With Russia completely halting gas supplies, EU energy ministers plan to hold an emergency meeting in Brussels on the 9th to discuss special measures to curb soaring energy costs.

According to a draft document of this emergency meeting obtained by U.S. Bloomberg News, the agenda submitted by the Czech Republic, the EU presidency country, includes applying a price cap on Russian crude oil and temporarily suspending trading of electricity-related derivatives. In the draft document, the Czech Energy Minister expressed concern, stating, "This winter, when energy use surges due to heating demand, will be a test of the resilience of the EU energy market," urging swift action.