Why do Spain and Portugal get special energy treatment?

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Spain and Portugal have pulled off a diplomatic coup with a new alliance to tackle soaring energy prices. Not against Putin’s Russia, which has its boot on the trachea of ​​European gas importers, but against their fellow partners in the European Union.

In the short term, this will protect consumers in Spain and Portugal, whose anger over inflation spilled onto the streets during the May Day protests. But in the long term, the agreement risks aggravating the visible cracks in European unity.

The two countries won a so-called ‘Iberian exception’ last week that will separate the peninsula’s electricity prices, which have wide access to renewable energy sources, from the soaring cost of natural gas on which it depends. the rest of the block. The resulting price cap of up to 50 euros ($52.55) per megawatt-hour would halve the electricity bills of 40% of consumers on the peninsula. Portuguese Prime Minister Antonio Costa called it a “great achievement”.

At first glance, this measure – presented as a “temporary” emergency tool – is no different from the tens of billions of euros spent by several individual European economies to protect vulnerable consumers and businesses against higher energy bills after Covid. . But it reveals deeper energy divisions within the EU as the bloc fights to keep a unified stance against Russia.

On the one hand, it is a visible brake on the EU’s desire to unify energy markets at a time when regulators are advocating adjustments such as hedging strategies or vouchers rather than more intervention radical. It transforms the peninsula into an “energy island”, separated from the rest of the union. Spain and Portugal have a very weak interconnection with the EU market, but this decision sets back years in terms of integration.

The Iberian exception also highlights a reshuffling of power dynamics within the EU, with the influence of the German economic “model” weakened by its dependence on cheap Russian gas. Brussels is now experiencing increased French leadership. Spain and Portugal, once derided as stereotypical “Club Med” economies, could see their post-Covid growth rebound and diverge from the rest of the continent, which is experiencing a slowdown due to energy disruptions from Russia.

Redrawing the North-South divide along energy lines could have deeper ramifications, says Ramon Mateo Escobar, director of consultancy BeBartlet. If Iberian electricity prices become artificially low compared to their neighbours, he says, investments and business could change accordingly. Spain and Portugal could use their influence to influence other countries to push for more fiscal stimulus in the form of Covid funds – the model promoted by the new EU power couple, France and Italy.

The optimistic view is that the Iberian exception could offer initiatives for the rest of the EU to follow. Spain wants to be a bigger player in alternative energy sources, encouraging investment in renewable energy and storage. The two Iberian neighbors could lead the way in energy saving and subsidies, for example by advocating for energy-efficient buildings.

But the long-term risks also increase. Consumers are numb to the cost of Putin’s war, and subsidies like this will be hard to cut. If this is the start of EU members being encouraged to go it alone, Putin may also find it easier to play divide and conquer, according to Simone Tagliapietra of Bruegel, a Brussels think tank. Cracks in the unity of sanctions are already showing.

Given that the energy storm is not expected to subside anytime soon, closer European integration and more common spending would indeed be a very useful umbrella. Given the task facing Europe – from the cost of overhauling its energy ties to strengthening its ability to defend itself militarily – it will be difficult to find shelter in energy islands.

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This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.

Lionel Laurent is a Bloomberg Opinion columnist covering the European Union and France. He previously worked at Reuters and Forbes.

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