Sweden and Finland have announced plans to offer billions of dollars in guarantees to Nordic and Baltic power companies in an effort to prevent a financial crisis in the face of Europe’s energy crunch stemming from Russia’s invasion of Ukraine.
Sweden said on September 4 that it plans to offer 250 billion Swedish crowns ($23.2 billion), while Finland disclosed it is looking to offer 10 billion euros ($9.95 billion) in liquidity guarantees to power companies.
"This [energy crisis] has had the ingredients for a kind of a Lehman Brothers of the energy industry," Finnish Economic Affairs Minister Mika Lintila said on September 4, referring to the collapse of the U.S. investment bank in September 2008 that led to the global financial crisis.
"The government's program is a last-resort financing option for companies that would otherwise be threatened with insolvency," Finnish Prime Minister Sanna Marin told a news conference.
Swedish Finance Minister Mikael Damberg said the liquidity guarantees would last until March 2023 for companies in Sweden. Coverage for all other Nordic and Baltic nations would be in place only for the next two weeks.
Officials said the new guarantees are designed to prevent increasing collateral requirements from bringing down energy companies trading electricity on the Nasdaq Commodities Exchange.
Should energy companies fail, the crisis could spill over to the overall financial industry.
Surging electricity prices have led to paper losses on electricity futures contracts of power companies, forcing them to set aside additional funds to meet exchanges' collateral requirements.
The Swedish government said the latest shutdown of the Nord Stream 1 pipeline from Russia to Germany under the Baltic Sea could lead to a further surge in prices.
Moscow has said required repairs are preventing operators from resuming deliveries at the pipeline, a claim Western leaders have cast doubt upon.
Many in the West accuse Moscow of weaponizing energy prices to break the unity of Western nations in the implementation of sanctions against Russia to punish it for its invasion of Ukraine.
Russia has denied it is using energy as a weapon against the West.