Europeans Don't Understand Markets, Part 37

Not a new theme around here, but the examples keep rolling in.  Now it's the protracted attempt to enforce a "European gas price cap".  Even the ECB knows this one is crazy: and for once, the Germans (the usual butt of my scorn on this issue) are more-or-less on the side of the angels.

The idea is this.  Almost all the economic ills of Europe are the fault of high wholesale gas prices.  (Never mind that this ain't true: French electricity prices are even higher, caused by the chronic state of their ailing nuclear fleet.)  So: if we simply legislate to cap wholesale gas prices ... all our troubles are over - right?

Most of the wrangling is over what the magic number should be.  Too high, and "it has no effect".  Too low, and, errr, well hang on, what does "too low" mean?  We want it to be low!

This fighting over exact numbers is an entirely fatuous fracas because the whole idea is structurally bonkers, whatever the level of the "price cap".  How is it supposed to work?  Unlike its predecessor, the "electricity price cap" (which was in effect to be paid for by governments, via a cash subsidy whenever prices actually rose above the cap - like the UK's present "energy price guarantee"), this one is an outright ban on gas dealings above the capped level.  Dealing, that is, on the leading exchange platforms handling spot trade at the main European gas trading hub, the Dutch TTF.  On an automated basis, no deals would be accepted at prices above the cap.

So, errr, no gas for Europe then, if the TTF price goes too high?   That's the German worry; but actually, nope - trade would simply migrate to other forums: bilateral dealing or, whisper it softly, platforms not coming under the EC's jurisdiction (London, NY and Chicago come to mind).  Any problems with that?  Well, there's the question of clearing and credit support: but bear in mind that in the days of yore, almost all gas trades were bilateral - and there are viable (if clunky) means of instituting bilateral credit support.  They'll just need to dust off those old ISDA Master Swaps.

In their deep ignorance, Euro-politicians work themselves into fine frenzies over this stuff - and burn a great deal of precious midnight oil.  Presumably they're all on double-time, free meals and 5* hotels when they work after 4pm or something.  And when it goes predictably tits-up, they all look around in wonderment and call for an enquiry.  What is the point of these people?  

ND