Europe’s energy market was not built for this crisis

hate fluctuating prices. When they fall too far, they are seen to be threatening firms. When they rise too high, they are seen to be unjustly enriching them. But economists look at price movements and see the revelation of crucial information. The recent frenzy about interventions in European electricity markets is an especially brutal example of this age-old dynamic. In recent weeks, forward prices for daytime electricity for the fourth quarter of the year briefly spiked above €1,200 ($1,200) per megawatt hour in Germany and above a surreal €2,500 in France. The usual price is around €50. The reason for this is simple: scarcity. The loss of generating capacity to maintenance (in France), closure (in Germany) and drought (across the continent) brought more and more gas plants into action, and their fuel has become extremely expensive since Russia wielded its energy weapon.