Olaf Scholz, Germany’s chancellor, during a news conference at the European Council headquarters in Brussels on May 31, 2022.

Olaf Scholz, Germany’s chancellor, during a news conference at the European Council headquarters in Brussels on May 31, 2022. (Valeria Mongelli/Blooomberg)

German Chancellor Olaf Scholz is under fire from European Union leaders over his reluctance to let the bloc try to curb soaring natural gas prices that threaten to push the continent into a recession.

As EU leaders gather in Brussels Thursday for a two-day summit, countries including France, Italy and Poland want to limit the cost of gas, which is roiling economies and fueling inflation as the region heads for a winter with drastically reduced shipments from Russia after its invasion of Ukraine.

But Germany -- which cultivated a deep reliance on cheap Russian gas -- is opposed to price caps, citing fears they would endanger supply at a time when the country needs more gas to avoid blackouts and rationing.

“It’s not good for Germany nor for Europe that it isolates itself,” French President Emmanuel Macron told reporters in Brussels. “It’s important that the proposals of a large enough consensus can find unanimity.”

A failure to agree on a joint response to the crisis would risk fragmentation of the EU market. If countries respond with a variety of complete plans to address the fallout, it could deepen economic divergencies between member states.

Germany’s €200 billion ($196 billion) plan to shield its national companies and households from high energy prices has come under criticism from member states that worry it would cause irreparable damage to the level playing field the EU is committed to creating in the single market.

When the EU leaders met two weeks ago in Prague, several were blunt in their criticism. “We are definitely against any attempts to damage the European internal market and the damage is going to happen if the German government will be able to go alone with exclusively subsidizing its companies,” Polish Prime Minister Mateusz Morawiecki, told reporters at the time.

Scholz on Thursday defended Germany’s national plan as appropriate and proportionally not much bigger compared to schemes from other member states. “We deliberately set up our protective shield for two-and-a-half years in order to be prepared for the coming winter,” he said in a speech to parliament in Berlin. “Calculated over this period, the €200 billion corresponds to around 2% of our gross domestic product. This is in the magnitude of the packages that were and are being put together elsewhere in Europe this year: in France, in Italy or in Spain, for example.”

European Council President Charles Michel, who will chair talks at the summit, is determined to secure an agreement on political guidelines for tackling the crisis, according to diplomats.

“Today isn’t the last chance, but it’s extremely important,” Michel told reporters. “It is a moment of truth.”

Many leaders vow to stay in the negotiating room as long as needed to reach a common solution at the summit, although no specific written plan has yet been introduced. The challenge is that political statements by EU leaders need unanimous approval from all the 27 states.

“We have to use all instruments that we have in the European Union, and to do it in as a wide as possible scale to get the total price to fall,” Latvian Prime Minister Krisjanis Karins said in Brussels. “One thing is to protect households and businesses from high prices, the second is do everything so that these high prices are lower and you can do that only with the instruments of the European Commission.”

A majority of EU leaders, including Macron, Italy’s outgoing Mario Draghi, Spain’s Pedro Sanchez and Morawiecki, support provisions in the so-called summit conclusions that would push the European Commission to propose capping wholesale gas prices and put a ceiling on the cost of gas used for power production. The latest draft statement seen by Bloomberg News says the EU’s executive should “urgently take work forward” on those measures.

Yet Germany opposes attempts to lower prices through market intervention, preferring other solutions outlined by the commission in a package of gas measures earlier this week, including joint purchases and setting up a new liquefied natural gas index.

“A politically set price cap always harbors the risk that the producers will then sell their gas elsewhere -- and we Europeans will end up getting less gas instead of more,” Scholz told parliament.

On the eve of the summit, Germany was not alone in its opposition to price caps. Denmark, Latvia and Hungary rejected the idea, while Estonia, Netherlands and Bulgaria wanted some additional conditions, according to diplomats.

The European Commission proposed measures to avoid extreme price spikes in energy derivatives and is seeking authority for a temporary price limit on transactions on the Dutch Title Transfer Facility, whose main index is the benchmark for all gas traded on the continent.

Germany is concerned that capping prices will lead to lower supplies with cargoes of liquefied natural gas diverted to Asia. Europe’s biggest economy is chartering five floating LNG terminals and at least two will be ready in time for winter. The nation’s head regulator said that in order to avoid a gas emergency in winter, Germany needs to increase gas imports.

The commission’s package that will be discussed by EU leaders at the summit includes a regulation where it is seeking authority from member states to propose a wholesale gas price cap as a last resort, under certain circumstances, and for a temporary period of time. Proponents of such a cap, including Italy, Poland, Belgium and Greece, want such a measure to be pursued.

European Commission President Ursula von der Leyen also said this week that a measure to cap the price of gas used for power production -- a solution that has already been introduced by Spain and Portugal -- merits consideration at the EU level. This type of intervention is endorsed by France.

“There are still questions to be answered, but I want to leave no stone unturned,” she told the European Parliament on Wednesday.

Even if EU leaders will not take any regulatory decisions today, their political guidance will determine the direction in which the bloc will move to rein in the crisis. In the next step, energy ministers will discuss the commission’s package and potential changes to the proposals at a meeting on Oct. 25 in Luxembourg.

Bloomberg’s Michael Nienaber, Aaron Eglitis and Natalia Drozdiak contributed to this report.

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