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European leaders are still struggling to come to terms with the Dutch and French No votes last year. At least for now, closer political union appears to be on ice. Even so, there is lots the EU could – and should – be getting on with.

For a start, it is about time Europe completed its much-vaunted single market: that means free trade in services as well as goods, and the free movement of all Europeans (not just rich ones).

It is also in Europe’s interest, as well as its neighbours’, that it expand its haven of prosperity and security east and south, by enlarging the Union where possible and through closer cooperation where not.

And Europe should make the most of its collective voice in trade and environmental policy to kickstart the Doha round and give new momentum to global efforts to insure against the potential of catastrophic climate change.

Another important area where Europe needs to act as one is in energy policy. Europe is sleepwalking into a dangerous dependency on Russian gas that will give a hostile Kremlin huge leverage over the EU. Just this week, the FT reported that:

Nato advisers have warned the military alliance that it needs to
guard against any attempt by Russia to set up an “Opec for gas” that
would strengthen Moscow’s leverage over Europe.

A confidential
study by Nato economics experts, sent to the ambassadors of its 26
member states last week, warned that Russia may be seeking to build a
gas cartel including Algeria, Qatar, Libya, the countries of Central
Asia and perhaps Iran…

Russia supplies 24 per cent of Europe’s natural gas, with Norway
selling 13 per cent and Algeria, a major exporter to Spain and Italy,
supplying 10 per cent.

Last week, the International Energy Agency
warned of “the possibility of major gas-exporting countries
co-ordinating their investment and production plans in order to avoid
surplus capacity and to keep gas prices up.”

Also writing in the FT, Fulvio Conti, the boss of Enel, warns that:

Europe is increasingly dependent on external sources – 65 per cent
of energy is imported and this is expected to rise to more than 80 per
cent in 20 years. Europe is particularly dependent on Russia: the
reduction of Russia’s exported gas last January exposed fragility. Gas
and electricity prices increased dramatically and there were supply
shortages at numerous points throughout the system. This is not a
challenge that can be dealt with effectively by 27 independent
micro-markets. It has to be met by European companies big enough to
negotiate with large suppliers, but must also be met by a united voice.
Europe is the world’s second largest energy consumer – the benefits of
negotiating with a single voice are obvious.

Scale counts in
ensuring future energy security, but so does source diversity. We need
to develop new gas supply routes in pipelines and liquefied natural gas
with supplier and transit countries, which will require strong European
political support. At the same time, we need to look beyond gas by
developing renewable energy and clean coal technologies. Europe must
also be realistic that nuclear energy will have to play a significant
role in the medium term at least.

Europe, take note.

UPDATE: A new poll for the FT by Harris Interactive finds that only 21% of Europeans believe Russia will be a reliable
source of oil and gas in the future, while 35% think it won’t be.

Posted 19 Nov 2006 in Blog

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