Europe’s Central Bank Rules Out Liquidity Support For Energy Firms

The European Central Bank will not give short-term financing to European energy firms struggling through the energy crisis, sky-high prices, and margin calls on the derivatives markets, ECB President Christine Lagarde said on Friday.   

“As far as the ECB is concerned, and the national central banks of the Eurosystem, of course we stand ready to provide liquidity to banks, not to energy utility firms,” Lagarde said at a news conference in Prague today, as carried by Bloomberg.

“In this current, very volatile environment, it’s important that fiscal measures be put in place to provide liquidity to solvent energy-market participants, in particular utility firms,” the ECB chief added. 

Europe’s energy firms, for their part, are estimated to be facing margin calls of a total of $1.5 trillion in the derivatives market. Many of these firms will need policy support to cover those calls amid wild swings and skyrocketing gas and power prices. The $1.5-trillion estimate is even “conservative”, Helge Haugane, Equinor’s senior vice president for gas and power, told Bloomberg earlier this week. 

Liquidity at energy firms is drying up as many companies have struggled to meet their margin calls on the energy derivatives market. 

Some countries in the EU have already decided to set up funds to avoid a collapse of their energy derivatives markets. For example, Finland and Sweden have laid out plans to support their energy companies trading in the electricity derivatives markets, looking to avoid a “Lehman Brothers” event in their respective energy industries and financial systems.  

“This has had the ingredients for a kind of a Lehman Brothers of energy industry,” Finland’s Minister of Economic Affairs, Mika Lintila, said on Sunday, as carried by Reuters, commenting on the energy crisis in Europe. 

The EU energy ministers are meeting today to discuss measures to help alleviate the crisis for households and businesses. The European Commission plans to propose a mandatory EU target soon to cut power consumption at peak hours. They are also planning a revenue cap on electricity producers and fossil fuel companies.  

By Michael Kern for Oilprice.com 

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