Sharp declines in funding after oil value rise
Power shocks have a tendency to cut back funding and innovation in Europe, in keeping with European Central Financial institution estimates.
In an article signed by Pablo Anaya Longaric, Alessandro De Sanctis, Charlotte Grynberg, Vasileios Kostakis and Francesca Vinci, it’s reported that listed firms within the EU cut back funding in response to vitality shocks.
Empirical evaluation reveals {that a} 1% improve in vitality costs because of oil shocks results in a big lower in mounted capital expenditure (-4.1% after one yr), whereas analysis and innovation expenditure decreases by nearly 1%, displaying extra restricted impact.
As well as, financially constrained and energy-intensive corporations face sharp reductions in funding following an increase within the value of oil.
EU uncovered to vitality crises
In response to the authors, the EU is very depending on imported vitality, making it extra uncovered to vitality crises than different main economies.
“As vitality shocks put downward strain on funding, and to the extent {that a} slowdown in funding can result in a drop in productiveness, the EU dangers regularly dropping its competitiveness. This may threaten not solely present but in addition future well-being,” it’s emphasised.
It’s instructed that coverage measures at each nationwide and European stage ought to purpose to safe the EU's vitality provide, cut back vitality costs and mitigate enterprise publicity to future vitality shocks.
On the identical time, it’s acknowledged that whereas nationwide interventions are essentially the most appropriate for addressing particular points per nation, EU actions ought to purpose to deal with frequent issues and promote cooperation between international locations.
The Draghi and Letta studies include a number of proposals to deal with these points. These embrace strengthening the frequent provide of pure fuel imports to extend the EU's market energy and increasing the usage of long-term electrical energy contracts.
The 2 studies additionally stress that dashing up and simplifying licensing procedures, channeling EU funds and selling cross-border initiatives to spice up renewable vitality manufacturing will enhance vitality safety and decrease vitality costs within the medium time period.
Lastly, selling the capital markets union may assist to ease financing constraints for companies, enabling them to put money into enhancing their vitality effectivity. Collectively, these measures can have the potential to strengthen the EU's resilience to future shocks and improve its long-term competitiveness.
In response to the report, the rise in vitality costs following Russia's unjustified invasion of Ukraine uncovered the EU to its largest vitality shock for the reason that Seventies.
