World

Macron’s energy intervention has seriously backfired

19 February 2022

9:58 PM

19 February 2022

9:58 PM

He intervened decisively. He showed the ability of the state to make a difference. And he demonstrated that greedy, self-interested corporations should not be allowed to exploit ordinary consumers. Only a few weeks ago, the French President Emmanuel Macron was being celebrated by left-leaning economists and pundits for forcing the French energy giant EDF to slash the cost of power. But hold on. Now, the government has had to bail-out the company from the inevitable financial hit. It turns out that the government can’t dictate the price of energy after all – and it just creates a bigger mess when it tries to.

Even by the standards of French industrial policy the shenanigans around EDF have a surreal quality to them. Last month, Macron, who seems to have forgotten everything he learned as a young banker, decided there was an easy solution to soaring energy prices. He would simply tell EDF, France’s main energy supplier, as well as a major supplier to the UK, that it could not raise prices by more than 4 per cent. Easy. Problem solved.


Well, not quite, as anyone with a passing acquaintance with economics pointed out at the time. The price cap cost EDF an estimated £6.5 billion, and prompted a collapse in the share prices – down 23 per cent since the start of the year – as well as pushing it into potentially huge losses. This week EDF announced that it would have to raise €2.5 billion in fresh capital from shareholders to cope. And since the French government happens to be the major shareholder – it owns 84 per cent of the business – it is now on the hook for €2 billion of that bill.

It is not hard to see the flaw in the process. First, the French government mandates the prices that can be charged for energy, and then it has to pay to bail-out the company that has been hammered by its own policies. Along the way it has damaged confidence in the business and frightened off private investors, at the very time when EDF is also expected to build a new generation of nuclear reactors that might actually fix the problem. Sensible? Rational? Not really. It is just a muddle.

If governments want to help people pay for the rising cost of energy then it is far better to do it through the welfare system. As we discovered in this country with Theresa May’s catastrophic price cap – the original idea was from Ed Miliband – all price controls do is postpone the pain and stop the industry and the market from working out a solution to the issue. In reality, Macron has made a complete mess of his energy strategy, and landed himself with a €2 billion bill in the process. Still, at least he has given the rest of us a lesson in how not to deal with the energy issues – even if it is a very expensive one for French taxpayers.

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