Vladimir Putin probably thinks that the leaders of Europe were born yesterday. Russian autocrat has made it clear he will use gas supplies as an economic weapon next winter. But European politicians and central bankers are still talking about the Russian energy embargo as a hypothetical possibility..
In fact, there is no way to avoid a pan-European recession, writes the Financial Times. However, it does not have to be deep or long-term.. In addition, this is the last economic map of Russia. If Europe makes sure its economy survives the cold season, Russian blackmail will fail. Moscow will not be able to declare victory over Kyiv, relying on the residents of Vienna, Prague and Berlin shivering from the cold.
Without a doubt, the European economy is vulnerable. Nord Stream 1 operates at less than 20% capacity, and other gas pipelines passing through Eastern Europe are under threat. Because of this, some countries faced the threat of physical gas shortages in winter. Even though European gas reserves are larger than last year, according to the IMF, a full Russian gas embargo will leave Germany, Italy and Austria with 15% less fuel than they would like.. Czech Republic, Slovakia and Hungary will face a shortage of 40% of the normal level of consumption. Prices will rise in all countries. Already, the retail price of gas in Europe is about 200 euros per megawatt hour. Although until February this price did not exceed 25 euros, which is eight times less.
When the prices of imported essential inputs rise, real incomes and the ability of the population to spend money on unimportant things fall.. Recession in such conditions is unavoidable. Such a gloomy but realistic conclusion was made by the Bank of England in its forecast. Pretty soon, the official forecasts of the eurozone will also say about the same prospect.. Even a nuclear-intensive France cannot avoid problems. Because its energy sector has its own problems and is deeply integrated into the overall European economy.
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The nightmare Europe needs to avoid when Putin turns off the tap is energy nationalism. If cross-border trade is restricted and industry does not receive bailout funds, Putin will counter unemployment in some countries with freezing in others.. This will solidify its self-proclaimed status as the main energy broker on the continent, able to raise or lower pressure on Europe and Ukraine by pushing a few buttons on gas pipeline pumping stations.. But such grim consequences are not necessarily inevitable.. The most important protection is the replacement.
Germany has already replaced most of the gas it imports from Russia with LNG. Liquefied gas is delivered to the Netherlands or Britain, from where it is pumped into German gas storage facilities. Until December, Berlin will launch the first of four floating LNG storage facilities, as well as regasification stations, which the government has leased. European industry is rapidly trying where possible to replace gas with electricity and other fuels in production. Companies also import semi-finished components from other countries outside the EU, where there is enough gas.
Temporary rehabilitation of coal takes place in electric power generation, despite the harm to the environment. And Germany is finally starting to consider ways to slow down the premature closure of its nuclear power plants.. Renewable energy in Europe is also expected to increase production by 15% this year, which will also reduce dependence on Russian gas.
After the replacement, we should also talk about solidarity in Europe. IMF modeling shows that more intensive cross-border gas exchanges could reduce losses in the countries most affected by the Russian embargo. The impact on the economies of Central and Eastern Europe will be reduced by almost half. If infrastructure between countries is improved, the ability to pump gas eastward from Western Europe, which has better access to LNG, will almost completely eliminate the effects of Russia's gas embargo in the future..
And finally, the Europeans themselves have a role to play.. Saving money for next winter is important. Advertising campaigns worked in Japan and Alaska to reduce energy consumption in the face of scarcity. This will also be helped by significant price increases, which will send a clear signal. Poorer families can receive lump-sum payments to help them cope with increased workloads. Industry should not take the brunt of Putin's energy war.
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Such policy approaches can reduce the worst effects in winter. It is predicted that the fall in GDP in Central Europe due to the Russian embargo could be about 6%. But with the help of the above measures, it is possible to reduce the impact to only a third of this figure.. And the EU economy as a whole will lose only 1.8%. And this is much less than during the global financial crisis.. Most importantly, any fall in GDP would then be temporary.. Every next winter, energy replacement will only get better.. Advanced Western economies will once again become resilient and resilient, but this time because of someone else's deliberate attempt to create chaos..
Meanwhile, the Russian economy is experiencing such a blow. Blasted by sanctions and unable to import essential goods, it will soon lose its main export sector, which was the supply of fossil fuels to Europe.. As Europe recovers from winter recession, Russian economy will remain exhausted. And Moscow itself will be to blame for this..