Energy retailer bankruptcies in countries such as the UK and energy group nationalizations in France and Germany, worrying developments of recent months, have emerged as a severe warning that a 2008 Lehman Brothers-type bankruptcy crisis in Europe is possible.
The energy crisis in Europe has placed the entire economy in peril as it could prompt a series of devastating knock-on effects.
Concern is high as a result of the high exposure of energy companies to margin calls, serving as guarantees that exist to ensure that if one counterparty goes bankrupt, the other will collect money it is owed.
The problem is that wildly fluctuating electricity and natural gas prices have forced companies to drastically increase their guarantee sums, even if just temporarily, a demand greatly pressuring their finances.
Highlighting this increased pressure, Greek power utility PPC’s chief executive Giorgos Stassis recently noted that PPC needed – for the aforementioned reasons – to commit one billion euros one day in August before being reimbursed half this amount shortly afterwards, when prices eased.
Margin-call demands have a multiplying effect that could turn the energy crisis into a debt crisis, as was the case with the financial crisis of 2008. This explains why European governments are rushing to offer capital guarantees and liquidity to energy companies in an effort to avoid bankruptcies caused by an inability to meet current needs.
It is estimated that such support measures in Europe will cost in excess of 1.5 trillion euros and could reach as high as two trillion euros.