Sweden will give emergency liquidity support to electricity producers after the government said it feared Russia’s decision to halt gas deliveries to Europe could place its financial system under severe strain.
Prime minister Magdalena Andersson said the government would offer hundreds of billions of kroner in support to electricity producers.
She warned that, left unchecked, rising collateral demands for electricity producers could ripple through the main Nasdaq Clearing market in Stockholm and, in the worst case, spark a financial crisis.
Her remarks came after Russia said on Friday evening that it would no longer supply gas via the Nordstream 1 pipeline. That announcement came after energy markets had closed for the weekend.
“Yesterday’s announcement not only risks leading to a ‘war winter’ but also threatens our financial stability,” Andersson said, standing alongside Sweden’s financial regulator, central bank governor and finance minister at an emergency press conference on Saturday.
Sweden’s dramatic action underscored the seriousness of the situation facing Europe as it scrambles to secure enough energy ahead of the winter and tries to avoid the spread of distress among electricity producers.
Germany has already bailed out Uniper, one of the country’s biggest utilities, and its majority shareholder, Finnish energy group Fortum, has asked the government in Helsinki for support.
Fortum warned on Monday that its collateral requirements had risen by €1bn to €5bn in the previous week, and that a default by a smaller player would cause “severe disturbances to the Nordic power system”.
Andersson said the support would apply to all Nordic and Baltic players, and would need approval by the Swedish parliament’s finance committee on Monday.
“We need to isolate this in one market so it doesn’t infect the financial sector,” said Stefan Ingves, governor of the Riksbank, Sweden’s central bank.
The Swedish authorities said they saw no immediate risk to financial stability, but were worried that otherwise-solvent companies could struggle to find enough liquidity, causing potential ripple effects.
“Russia is waging an energy war against Europe to divide us. But we will not let Putin succeed,” Andersson said.
Andersson’s comments come a week before parliamentary elections in Sweden with polls pointing to a tight outcome. She said her centre-left government stood ready to act, just as it did over the Covid-19 pandemic.
Erik Thedéen, head of Sweden’s Financial Supervisory Authority, said power prices in Sweden had risen 11-fold in the past year, leading to a jump in collateral demands.
He added that without liquidity support electricity producers could face bankruptcies and large losses that could lead to the collapse of the clearing house. “It is under very severe stress,” he said.
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