How EU’s muddled gas price cap compromise came about

Good morning and welcome to Europe Express.

It was a long summit night, with leaders clashing on plans for a gas price “corridor” and a fresh round of common borrowing to address the energy crisis this winter, before agreeing to tell the European Commission to come back with concrete plans on both.

We’ll bring you up to speed with Mario Draghi’s feisty swansong as he bows out of the post of Italian premier.

In other outgoing prime minister news, Britain’s Liz Truss announced yesterday that she would step down, breaking the record for shortest term in office at 10 Downing Street. This prompted concern on the EU side about Britain’s stability, confirming the continued consternation in Brussels about UK politics following Brexit.

In Italy, President Sergio Mattarella will today receive the awkward trio that might form a government, and we’ll bring you the latest on the dynamics in the Giorgia Meloni world.

Nobody’s a winner

Germany’s red lines in the EU are not what they used to be. Take the idea of capping gas prices: earlier this week Berlin wanted it eliminated entirely from the summit’s draft conclusions.

By early morning today, German Chancellor Olaf Scholz decided to go along with it, despite his concerns about the unintended consequences of meddling in the markets, write Valentina Pop and Alice Hancock in Brussels.

Addressing the European Council probably for the last time, outgoing Italian prime minister Mario Draghi painted a grim picture of how Berlin’s stubbornness on opposing the cap had driven up prices, filled Russian president Vladimir Putin’s war chest and risked causing a recession, according to diplomats familiar with the discussions.

If after months of talks leaders still couldn’t come around to a price cap, what did that say about EU unity, the former central banker asked his colleagues.

So what brought Scholz around? Well, the package that was finally agreed this morning was riddled with caveats. Over successive rounds of negotiations, leaders kept the reference to a “temporary dynamic price corridor” (aka price cap) on which the European Commission should “urgently submit concrete decisions”, a nod to Draghi’s plea for immediate solutions with winter approaching. But the capping is still strictly limited to “episodes of excessive gas prices”. Any interventions cannot lead to an increase in gas consumption or undermine the security of gas supply in the bloc.

Scholz highlighted those caveats on the way out of the summit, insisting he had not been isolated “in any way”. But he conceded the use of price caps to limit speculation “makes sense”.

Several other leaders, including Hungary’s Viktor Orbán and Mark Rutte of the Netherlands, also managed to extract concessions in the text.

Orbán demanded an exemption for existing contracts, with the final language taking that into account. For his part, Rutte had issues with the idea of further rounds of joint borrowing to combat the energy crisis. The final language was notably vague on this topic, talking of “mobilising relevant tools” and “common European level solutions”.

On new financing, Scholz and Rutte both pointed to existing funding that had to be exhausted first, which Rutte said amounted to “hundreds of billions”. But some diplomats said inside the meeting, the German chancellor was more open to the idea of loan guarantees modelled on Sure, the pandemic unemployment scheme which we wrote about here.

Chart du jour: All bets are off

The bookies’ favourite among the candidates to succeed Liz Truss as UK prime minister is Rishi Sunak. The odds of ex-PM Boris Johnson making a comeback fluctuated considerably yesterday. One to watch.

First shot at a government

In Italy, all eyes will be on the Quirinale — the grand presidential palace — today as Giorgia Meloni leads her rightwing coalition to a meeting with President Sergio Mattarella, an encounter that could lead to a formal presidential invitation for Meloni to form a government, write Amy Kazmin and Giuliana Ricozzi in Rome.

After her decisive election victory last month, the leader of the far-right Brothers of Italy has been working with Matteo Salvini’s League and Silvio Berlusconi’s Forza Italia to prepare her line-up of cabinet ministers.

But that tentative process was severely disrupted this week, after the leak of an audio recording in which Berlusconi told newly elected Forza Italia lawmakers that he had rekindled his longstanding relationship with Vladimir Putin, after the Russian leader sent him 20 bottles of vodka and a “sweet note” for his birthday, which was last month.

The next day, a second recording emerged in which Berlusconi explicitly blamed Ukraine and its president Volodymyr Zelenskyy for the ongoing conflict there and expressed concern about the western flow of military assistance to Kyiv.

The explosive tapes are a major embarrassment for Meloni, who previously pledged that the coalition would ensure continuity with outgoing Prime Minister Mario Draghi’s strong support for Ukraine in its struggle to beat back the Russian invaders.

In a stern statement on Wednesday night, she called Italy’s commitment to the EU and Nato a “cornerstone” of her foreign policy and warned that anyone who did not agree would not be part of the government — “even if it means not making the government”.

Meloni is not the only who is deeply discomfited. Berlusconi’s second-in-command in Forza Italia, Antonio Tajani, a former European parliament president expected to be tapped as foreign minister, understands how Brussels works and could help Meloni manage her critical relations with the EU.

He spent yesterday in Brussels at the pre-summit European People’s party meeting seeking to reassure allies that Forza Italia remains committed to the Ukrainian cause, whatever Berlusconi might say.

But Berlusconi’s rant could complicate Meloni’s discussion with Mattarella and make the process of government formation more awkward — or protracted. What Berlusconi, who is also expected to attend the meeting with Mattarella, might tell the president during the group meeting is anybody’s guess.

In consultations with Mattarella yesterday, Giuseppe Conte, the leader of the opposition Five Star Movement, expressed dismay at the prospect of a Forza Italia member becoming foreign minister in light of Berlusconi’s views.

Conte’s own commitment to the Ukrainian cause, however, is ambiguous. He is planning a massive peace march in Rome on November 5 and said the EU should be at the forefront of trying to foster peace. He has also been non-committal about whether his party would support future weapons shipments and military aid to Ukraine.

What to watch today

1. EU leaders meet for second summit day in Brussels

2. Transport ministers meet in Prague

Smart reads

• Trade shifts: Europe’s trade policy should focus on the Indo-Pacific region beyond China, which would offer the German and European economies more opportunities to tap new sources of raw materials and access reliable sup­plier networks and growing sales markets, writes Hanns Günther Hilpert for the German Institute for International and Security Affairs.

• Chips Act sceptics: The Centre for European Reform argues that the EU’s Chips Act is unlikely to deliver the financial firepower to ensure Europe can compete globally or significantly increase Europe’s strategic autonomy.