Economics of War: Now Europe, Later Russia’s Pain
gregoirelautner6 mins ago
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Throughout Europe, the signs of distress have doubled as Russia’s war in Ukraine prolongs. Italian food banks feed more people. German authorities are refusing to air-condition because they are preparing plans to distribute natural gas and reopen coal-fired power plants.
Huge utilities are seeking taxpayer bailouts, and much more can come. Dairy products wonder how to pasteurize milk. The euro has fallen to its 20-year low against the dollar, raising expectations of a recession.
These pressure points are a sign of how the conflict took place, with Kremlin gradually shutting off the natural gas that keeps the industry vibrant, causing an energy crisis in Europe and the economy recovering from COVID-19. Just as you are, you are more likely to enter a recession. Pandemic.
Meanwhile, the high energy costs caused by the war are in the major oil and gas exporters, where agile central banks and years of sanctions have stabilized rubles and inflation, despite economic isolation. It is benefiting a certain Russia.
But in the long run, economists say Russia will pay a great price for the war while avoiding a complete collapse. In other words, deepening the economic stagnation through the loss of investment and the decrease in the income of the people.
Europe’s most pressing challenges are short-term. Fight record inflation of 8.6% and survive the winter without compromising energy shortages. The continent relies on Russia’s natural gas, with higher energy prices flowing into factories, food costs and fuel tanks.
Uncertainty weighs heavily on energy-intensive industries such as steel and agriculture that may face the distribution of natural gas to protect homes in the event of a worsening crisis.
Molkerei Berchtesgadener Land, a large dairy cooperative in the German town of Pidding on the outskirts of Munich, has 200,000 liters (44,000 gallons) of fuel oil and continues to generate electricity and steam to sterilize milk. You can keep it cold if you have electricity or natural gas. The turbine generator is stopped.
This is an important safeguard for 1,800 member farmers, where 50,000 cows produce 1 million liters of milk a day. Dairy cows need to be milked daily, and when shut down, the sea of milk can no longer go anywhere.
“If dairy products don’t work, farmers don’t work either,” said Managing Director Bernhard Pointner. “Then farmers would have to throw away their milk.”
In an hour, dairy products use a year’s worth of electricity at home to keep up to 20,000 pallets of milk cold.
Dairy products are also stockpiled with packaging and other equipment to prevent suppliers from running out of energy.
Financial problems also appear at the dinner table. Consumer groups estimate that a typical Italian family is spending an additional € 681 this year to feed themselves.
“We are really worried about the situation and the continued increase in the number of families we support,” said Dario Boggio Marzette, president of the Lombardy food bank. Poor people. Their monthly cost has risen by 5,000 euros this year.
Jessica Robli, a single mother from Gennevilliers on the outskirts of Paris, pays close attention to soaring groceries. She reduced her consumption of milk and yogurt and abandoned Nutella or branded cookies.
“The situation gets worse, but you have to eat to survive,” said Lobli, who earns € 1,300-2,000 a month in the school kitchen.
Her monthly food budget ranged from 150 to 200 euros and dropped to 100 euros in June. She doesn’t eat much in her family in the summer, but she has to buy school supplies for her 15-year-old daughter and 8-year-old son in September, further reducing her budget. She said she was worried.
French President Emmanuel Macron says the government is aiming to save energy by taking steps such as turning off street lights at night. Similarly, German officials have begged people and businesses to save energy and have ordered lower heating and air conditioning settings for public buildings.
This was after Russia blocked or reduced natural gas to 12 European countries. Last week, a major gas pipeline was also closed due to regular maintenance, and there are concerns that the flow through Nord Stream 1 between Russia and Germany will not resume.
Uniper, Russia’s largest importer of gas, sought government support after being squeezed between soaring gas prices and those allowed to charge customers.
Carsten Brzeski, chief eurozone economist at ING Bank, predicts a recession at the end of the year as highs deprive purchasing power. Europe’s long-term economic growth depends on the government’s commitment to the huge investment needed to transition to a renewable energy-based economy.
“The only thing that remains, without investment, without structural changes, is to expect everything to work as before — but it doesn’t work,” Brzeski said.
While Europe is suffering, Russia has stabilized the ruble’s exchange rates, stock markets and inflation through extensive government intervention. Russian oil is finding more buyers in Asia, albeit at a discounted price, as Western customers recede.
The Kremlin built a fortified economy by keeping debt low and encouraging companies to procure parts and food in Russia after being sanctioned for the seizure of Ukraine’s Crimean region in 2014. ..
Foreign companies like IKEA have been shut down and Russia has defaulted on its external debt for the first time in more than a century, but downtown Moscow has no imminent sense of crisis. At the 7-story Ebro Pey Ski Mall, UNIQLO, Victoria’s Secret, and Zara stores are closed, but energetic young people go to restaurants.
Vkusno-i Tochka, the successor to McDonald’s, offers almost the same food. Meanwhile, the former Krispy Kreme in the mall has changed its brand but basically sells the same food.
In less wealthy states, Sophia Svorova, who lives in Nizhny Novgorod, 440 km (273 miles) from Moscow, is feeling pressure on her household.
“We virtually don’t order takeaway food anymore,” she said while shopping in the supermarket. “Previously it was very convenient when we had small children. We go to cafes less often. We needed to reduce entertainment such as concerts and theaters. We tried to keep this for our children. But adults had to cut it. “
Economists say the ruble’s exchange rate (stronger against the dollar than it was before the war) and lower inflation represent a misleading situation.
Rules that prevent money from leaving the country and force exporters to exchange most of their foreign income from oil and gas to rubles have fraudulent exchange rates.
And inflation “partially lost its meaning,” wrote Janice Kruge, a Russian economic expert at the German Institute for International Security, in a recent analysis. This is because we have not considered the disappearance of Western commodities and the decline in inflation probably reflects a decline in demand.
According to political scientist Ilya Matveev, by 2020 about 2.8 million Russians were employed by foreign or mixed-owner companies. Taking suppliers into account, as many as 5 million jobs, or 12% of the workforce, depend on foreign investment.
Foreign companies may find Russian owners, and protectionism and government overwork will prevent mass unemployment.
But economic productivity will be much lower, Kruge said, “leading to a significant drop in average real income.”
https://www.independent.com.mt/articles/2022-07-18/world-news/Economics-of-war-Pain-for-Europe-now-later-for-Russia-6736244542 Economics of War: Now Europe, Later Russia’s Pain
