Pessimism dominates Europe’s boardrooms as the energy crisis and rampant inflation continue to weigh down business confidence.

Over a third (34 per cent) of chief executive officers (CEOs) in ERT’s latest survey said they plan to temporarily cut investment spending because of high energy prices. In addition, 15 per cent said such cuts would be permanent.

New reality

Executives are divided over how long energy prices will stay high. Almost half (44 per cent) expect them to return to their 2019 levels by 2024, 38 per cent said high prices are here to stay.

“The energy crunch is likely to continue with gas supplies squeezed, demand poised to increase heading into winter, and efforts to substitute Russian gas with alternative sources taking time,” the survey said. “Consequently, energy prices will likely remain elevated beyond the 2023 winter.” 

Action on energy

In response to high energy prices, the European Commission announced a market correction mechanism. That means the Commission could intervene if gas prices spike sharply again. In effect, it has created a price ceiling of €275 per megawatt hour for gas-related derivative instruments.

But the proposals are contested. Some of the European Union’s leaders complain that the cap is too high.

“A price cap at the levels that the Commission is proposing is not in fact a price cap,” Kostas SkrekasGreece’s environment and energy minister, told CNBC. “Nobody can stand buying gas at this expensive price for a long time.” He suggested a cap between €150 and €200 would be more realistic.

Root cause

Before the war in Ukraine, Russia was Europe’s largest supplier of petroleum oils and natural gas – accounting for 40 per cent and 26 per cent of total imports, respectively. Supplies from Russia stand at just under 10 per cent, creating higher prices throughout Europe. Since the region’s electricity prices are linked directly to gas prices, the cost of energy – and therefore of doing business throughout Europe – has spiked to historical highs.