Anatomy of a Fairy-Tale Failure
The good news is, I got to spend most of Easter with the grandchildren.
The not-so-good news is why.
The tower at Friedberg Castle could be straight out of a German fairy tale.
However, this tale did not have a happy ending. The meetings here ended early.
Well, actually, that is not quite accurate.
They failed. This was a serious discussion that collapsed almost before it began.
And there was one essential reason why.
The agenda I mentioned in the last OEI was never a realistic option.
There was a pro forma discussion; courteous lip service was rendered; and all the diplomatic niceties were applied. However, there was never a chance that anything of substance would be ironed out.
That's because three underlying impediments to any significant action are in force. While they have an immediate impact on what is likely to happen on this side of the pond, make no mistake…
They are already in place in the United States.
Problem No. 1: Reluctance to Act
First, there are reservations among a wide array of decision makers to engage any course of action before the pain has really hit.
Certainly, some initial longer-term actions have been initiated in Europe. These include:
- new natural gas pipeline plans,
- a complete nuclear power phase-out (Germany, Switzerland),
- higher financial commitments to strengthen reactors from earthquakes (France),
- serious discussions on domestic shale gas and coal bed methane production (Poland, Hungary, Bulgaria), and,
- renewed public statements of support for renewable energy projects (just about everywhere).
But the tools developed to meet the fast approaching near-term crunch are few and far between.
In a precursor to the approaching debate on the other side of the Atlantic, the European Union in Brussels recognizes that it is impossible to meet the immediate problems without hurting another country. All of the member nations understand this as well. And that means the leadership from one end of Europe to the other will delay unpopular decisions for as long as possible.
The overall crisis is not in doubt, but the political will to meet it remains in short supply.
Problem No. 2: Ideology and Blame Shifting
Second, everyone understands that the political reaction will be to find somebody else to blame. European politicians share this reaction with their American counterparts. The energy situation demands a bipartisan (or, in many quarters of Europe, a multi-partisan) approach.
Instead, the “solution” will be to use energy as a club with which to batter the other guy(s). The Continental approach, at least, holds parties responsible for their platforms. As one government is voted out, the next is given some time to perform on promises made, yet is never given too much of a leash.
Ideology is still a factor.
But parliamentary systems tend to balance such considerations far better than the American horse-opera variety (you know… white-hatted cowboys versus black-hatted villains).
In rapid order, the ideological component will be a lesser worry. The combination of rising prices and availability concerns hitting in oil is neither a conservative, nor liberal, nor labour, nor socialist, nor a nationalist front issue.
The energy crunch cares little about worldviews or party labels.
It will strike without regard to who is in office or who is out in the square protesting.
Problem No. 3: State Involvement is Only Going to Rise
Third, there is a deeper problem preventing an early resolution. It remains the 800-pound gorilla in the room. Nobody wants to address it in the States, and only those considered well-left-of-center over here would advance it publically.
We may be reaching a point at which the continuation of a free market in energy could become problematic. There are no solutions considered worthy of pursuing that would avoid greater government involvement.
Additional regulations, central planning, limitations on forward trades, and public sector control are probably coming.
That is easier in Europe for two underlying reasons.
First, there is already state control of the energy space. Second, unlike in the U.S., individuals do not privately own energy raw materials over there.
The presumption is that the state makes decisions on such matters for the common good. On the other hand, even entertaining that premise immediately becomes a main American political battlefield.
As energy matters take up more of our time – given the fundamental economic consequences affecting investment, employment, business prospects, and lifestyle – the luxury of avoiding some fundamental questions will end as well.
These meetings over the past several days were held to establish a series of policy options to serve as the basis upon which to pursue multilateral initiatives. In the end, no consensus resulted beyond one that the crisis is fast approaching; no resolutions, solutions, or tangible policy options could garner any broad based support.
Perhaps, it was too early to expect a breakthrough.
There will now be other meetings held in other locations when flexibility is even more limited and the time constraints more pronounced. The process remains strangled by the realities of coalition politics in Europe, and the numbing of talking about major issues that always attends electioneering everywhere.
The European/North American market alliance is moving into what I believe will be a fateful summer still without a plan of action.
This will be nasty, painful, and much worse than 2008 – threatening to derail economic recovery in many parts of the world, once again tightening credit, and encouraging more extreme knee-jerk remedies.
Maybe I am wrong here.
That would be a relief.
But after nearly four decades of dealing with these matters, it doesn't look like it.
This will be the summer of our discontent. Either we find a way to change the energy calculus, or events are going to change it for us.
P.S. For months, Kent has discussed the Brent-WTI spread and what it means to global politics and financial markets…
But, if you give him a minute, he'll also explain how you can profit.