Limiting gas prices in EU may cause prices to rise
2022.12.08 14:41
Limiting gas prices in EU may cause prices to rise
Budrigannews.com – The European Central Bank issued a formal opinion on Thursday stating that proposed rules for the European Union aimed at limiting price rises may actually threaten financial stability and need to be redesigned.
After a spike in energy costs raised financial market stress in energy derivatives trading and pushed inflation to record highs, the EU made a proposal last month for a “market correction mechanism” with the goal of reducing natural gas prices and market volatility.
While acknowledging that the objective was to moderate extreme price levels and volatility, the ECB, a guardian of the bloc’s financial stability, cautioned that the rules could accomplish the exact opposite.
In an opinion that was signed by President Christine Lagarde, the ECB stated, “The ECB considers that the current design of the proposed market correction mechanism may, in some circumstances, jeopardize financial stability in the Euro area.”
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It added, “The mechanism’s current design may incentivize migration from trading venues to the non-centrally cleared over-the-counter market, challenge central counterparties’ ability to manage financial risks, and increase volatility and related margin calls.”
The European Central Bank also asked the European Commission to limit its involvement in activating and terminating the price mechanism because the current proposal could impair the bank’s independence and assign it a new task without changing the EU Treaty, even though other agencies might be better suited for the job.
The ECB added that the EU should merely have the “possibility” of seeking the ECB’s guidance instead.
