Populist media regularly emphasize, most recently in response to rising energy bills across Europe, that economic hardship is widespread and can be addressed with simple policies.
A decade ago, the media in Ireland lamented the budgetary constraints that followed after the state’s descent into bankruptcy following the bank crash. The Covid emergency depressed global economic activity from early 2020 but has almost disappeared from media coverage, although its fingerprints remain visible on government debt figures.
Today, the media’s constant refrain is the pressure on household budgets from the cost of imported energy.
The message across the board is that economic policy problems can be solved by governments, given the political will.
Political will is freely delivered by populist politicians, particularly the opposition, and governments feel pressured to respond with measures hailed by the media. They know these measures will be difficult to enforce and they are encouraged to gamble.
When problems cannot be “solved,” they must be endured or, at best, mitigated. One of them is the pressure on living standards due to the increase in energy costs. When import prices rise sharply, real income falls through no fault of the government – or even the importers.
After the price shock, the community is worse off. Those most affected can be helped, at the expense of those who have the greater ability to take the blow. But the community as a whole cannot compensate itself except through borrowing, at the expense of higher debt and future interest bills.
No open economy can escape adverse terms of trade developments. If the adverse move affects only a small component of imports (bananas), it can be ignored – but energy is different.
The real income of European businesses and households has already shrunk and more is to come as retail energy prices catch up with wholesale market prices.
Insistent demands to restore all households, businesses, farms, schools and hospitals to their pre-crisis condition cannot be achieved by redistributing the burden. Recovery can be achieved through additional government spending, but only at the cost of higher budget deficits and additional public debt.
It follows that every newspaper and broadcaster that features distressed headlines and amplifies calls for the restoration of pre-crisis real incomes – without offsetting the increase in public revenues – is arguing for more government borrowing.
So have lobby groups, including unions and social leaders, who offer to offset the books only through unspecified additional taxes for the unidentified wealthy. Alternatively, unquantified levies could be levied on energy companies’ windfall profits, which are believed, without evidence, to be significant enough to offset any additional costs to the treasury.
Companies that buy gas and electricity on wholesale markets and distribute them at retail prices are not making any extra money, whatever the media says. Some are struggling to catch up and there have been bankruptcies of so-called ‘utility’ companies in the UK that have been unable to cover their exposures in the derivatives markets.
Price volatility is not desirable for distributors who need to fund huge increases in working capital and could lose out if prices fall.
A few weeks ago, the owners of BGE electricity and gas retail company here, UK-based Centrica, made profits of £33m in Ireland. It was breathlessly reported in the mainstream media and cited as evidence of a profit bonanza. The same interim report noted that Irish sales for the six months were £784m – so they achieved a sales margin of just 4.2 per cent.
The sales figures escaped media attention. Centrica’s parent company has requested billions of dollars in financial support from the UK government to fill the working capital gap.
The owner of your local gas station will charge you more for gas and diesel – but they’re not the guys making the extra money, nor is BGE. The lucky ones are the owners of oil and gas reserves.
Apart from the shareholders of the Corrib gas field, no taxable company in Ireland is so fortunate. The Corrib owners have had significant tax losses in the past and it’s hard to say if there’s potential to relieve them of their improved earnings.
Others who may be making profits are power producers, whose commodity costs have not risen as fast as their selling price. That includes ESB, whose Moneypoint facility needs to be more profitable as coal prices haven’t risen as fast as electricity — but ESB is government-owned anyway and faces a massive decarbonization capital program.
Taxing the wind farms can generate income, their raw material is free, but some of them have agreements with the regulator that guarantee a minimum price without determining a ceiling.
The government is poised to extend its budget gifts beyond the promised €6.7 billion, citing unexpected corporate tax receipts.
Irish 10-year bonds yielded 2.3 percent on Friday, up from zero last winter. And another debt crisis in the eurozone is looming.
Media populism promotes short time horizons, short memories – and the willingness to play with the creditworthiness of the state again.
https://www.independent.ie/opinion/comment/energy-crisis-media-populism-encourages-short-memories-and-a-willingness-to-gamble-41979349.html Energy crisis: Media populism promotes short memory and willingness to play