EU leaders to call for gas price cap to curb inflation -draft statement

European Union flags flutter outside the EU Commission headquarters in Brussels, Belgium, June 17, 2022. REUTERS/Yves Herman

BRUSSELS, Oct 3 (Reuters) - European Union leaders will ask the EU's executive arm on Friday to work out how to tackle soaring inflation through a cap on gas prices in a bid to address the root cause of the EU's problems, draft conclusions of the summit showed.

The call for an EU gas price cap, which Germany, Austria, the Netherlands, Hungary and Denmark have opposed, comes as the 27-nation EU is scrambling for a joint response to the unfolding cost-of-living crisis, caused by the collapse of Russian gas deliveries in retaliation for the EU's support for Ukraine.

Germany raised the temperature of the debate last Thursday by announcing a 200 billion support package for its firms and households as electricity prices, linked to gas prices, went up tenfold this year, inflation hit a record high of 10% and the 19 countries sharing the euro are heading into a recession.

Others in the EU cannot afford help of such size -- France has put together 67 billion euros and Italy 68 billion. Berlin's move triggered concern in the European Commission and EU capitals about the fairness of competition in the EU market.

Comparing the external shock of the energy price crisis to the COVID-19 pandemic, EU officials are calling for a joint EU response that would help all countries deal with the problem without compromising fair competition rules.

An EU-wide agreement on a cap on gas prices, if it gets enough backing, could be one such joint response.

"Our efforts to ensure the security of supply and to reduce energy prices need to be continued," the draft conclusions of EU leaders, seen by Reuters, said.

"We invite the Commission to work, as a matter of urgency, on ... proposing workable solutions to reduce prices through gas prices cap," said the draft, which could still change before it is published on Friday.

In what looks like a response to the German support scheme, euro zone finance ministers, meeting in Luxembourg, will belatedly, pledge in a statement on Monday to better coordinate national support measures between countries in the future.

"Given the strong spillovers in the European energy markets, we will coordinate our measures to preserve the level playing field and the integrity of the single market," a draft statement of the ministers, seen by Reuters, said.

"We should seek to avoid the energy price shock to develop into second round effects and more persistent acceleration of inflation," the draft said.

EU countries on Friday approved a set of bloc-wide measures including windfall profit taxes, to cushion consumers from soaring energy bills. But states are split over their next move, which leaders will debate at their meeting in Prague.

A majority of the 27 countries want an EU-wide cap on gas prices. Fifteen countries last week urged the Commission to propose one, and some - including Poland and Italy - are now drafting their own proposal. Other countries are opposed.

The Commission has not yet proposed a cap and raised concerns over the idea - suggesting countries instead consider narrower price caps, such as one targeting gas used for power generation only.

But while the EU searches for more bloc-wide measures, some, like Germany, are pushing ahead with national measures.

"Without a common European solution, we seriously risk fragmentation," Commission President Ursula von der Leyen said on Saturday.

Reporting by Jan Strupczewski, Kate Abnett, editing by Marine Strauss and David Evans

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