Russian gas cuts risk reviving old EU divisions this winter

• Southern capitals cool to excessive efforts to help Germany
• Bloc confident that solidarity will prevail against Putin

Russia's gas cuts risk fracturing the unity of the European Union this winter as strained budgets and supply issues limit the bloc's capacity to cope with a sudden, severe energy shortage.

EU nations are seeking to sustain their common response to what they label President Vladimir Putin's blackmail five months into the invasion of Ukraine. But their discussions are starting to echo the tensions that divided northern and southern member states in the aftermath of the financial crisis.

Member states agreed on Tuesday to cut their demand for gas by 15% over the next eight months, with a severe disruption in supplies from Russia potentially making that a binding goal. The compromise deal came after southern countries in particular pushed back against an initial proposal from the European Commission, the EU's executive arm.

Spanish Deputy Prime Minister Teresa Ribera saw the commission's original plan as a "disproportionate sacrifice," adding pointedly: "Unlike other countries, we Spaniards have not lived beyond our means from the energy standpoint."

Germany, with its huge and energy-hungry industry sector, is the target of some resentment. The country -- which for years accused Portugal, Greece and Spain of irresponsible economic behavior -- is now demanding solidarity from the EU to cushion the impact of declining Russian gas flows despite having cultivated an over-dependence on Moscow.

Some member states may be reluctant to make sacrifices for Berlin because of its failure to diversify energy sources while lecturing southern nations on putting their fiscal houses in order, according to a senior EU diplomat who declined to be named on a confidential issue.

Euro Crisis
The tensions seen at the worst of the euro crisis could reemerge if continuing Russian gas cuts force countries that are less dependent on it to restrict consumption for companies and households, another senior diplomat said.

Disunity in the bloc became intense in the aftermath of the financial crisis. Fresh divisions flared up between eastern and western member states during the migration crisis of 2015-2016.

The EU turned the page on that level of discord during the Covid-19 pandemic, with joint vaccine purchases and a recovery fund financed by common debt. Unity among the 27 nations was further cemented in response to Russia's invasion of Ukraine, with the approval of six rounds of sanctions.

On the energy crisis, commission officials and some member states are now starting to echo some of the language used to describe systemic banks a decade ago by suggesting Germany and its economy are too big to fail. If the country's powerful industry had to cope with gas cuts by itself, the fallout would be too damaging for the EU market, they note.

'Community of Destiny'
"An economic crisis in Germany would be a crisis of the whole European economy," German Economy Minister Robert Habeck said on the sidelines of a trip to Prague and Vienna last week. Europe has become a "community of destiny," he added. Germany's economy ministry declined to comment further.

Simone Tagliapietra, a researcher at the Bruegel think-tank in Brussels, argues that it's payback time.

"The north has shown solidarity to the south during Covid, so the same should be done now the other way," said Tagliapietra. "But as this principle might not work alone, the compensation mechanism idea can be the way to ensure it and avoid the key risk of fragmentation and energy protectionism."

Tagliapietra proposed establishing a compensation mechanism to pay for gas supply and demand options which would be made available by certain countries to the most vulnerable ones.

But a senior German official acknowledged that EU solidarity might unravel quickly this winter in the case of severe gas scarcity. That's why Germany, which faces technical difficulties including a lack of infrastructure for liquefied natural gas, has invested 15 billion euros ($15.2 billion) to buy gas on the market for storage, irritating some EU partners as this helped drive up prices. 

A cutoff from Russian gas would mean EU stockpiles being 65% to 71% full at the start of November, below the 80% target, the commission estimated last week. That indicates a gap of 30 billion cubic meters during the winter under normal weather conditions and continuously high LNG supply, it said, warning that storage could empty out in several member states by next April.

That would in turn mean the situation could be even worse the following winter, with stockpiles in October 2023 potentially only reaching around half-full, according to simulations run by the commission.

Still, those who were on the receiving end of German pressures a decade ago remain confident that solidarity will prevail even if heated discussions may threaten unity.

"There's no time for new divisions between north and south, we managed to overcome these during the Covid crisis," Greece's Miltiadis Varvitsiotis, whose position as alternate foreign minister includes responsibilities for European affairs, said in a phone interview. "It would be a step back politically if we bring back these divisions."

Disclaimer: This article first appeared on Bloomberg, and is published by special syndication arrangement.