After Western sanctions, Europe could face a difficult short-term energy crisis if Russia cuts off gas and oil supplies in retaliation.
(Photo: dpa)
Even during the pandemic, Europe faced acute challenges on several fronts: the rapid spread of a dangerous virus, stalled supply chains, a shortage of intermediate products and transport delays.
But a war in Europe was unimaginable. Unfortunately, the events of the past few weeks have taught us otherwise. Today we face a reality that Europe’s leaders thought could only be found in the history books.
In the wake of the coronavirus outbreak, central banks took significant action to ease access to credit and liquidity. Politicians went into crisis mode to support businesses and households, and structural change was put on hold.
Meanwhile, geopolitical power struggles were brewing in the background. In one of my columns last year, I questioned what the next crisis would be and pointed out the only lesson history seems to teach us – that crises will always repeat themselves. There seems to be no respite these days.
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Just as the pandemic was beginning to subside, Russia attacked a neighboring country, sparking a new period of chaos and suffering. Russia’s invasion of Ukraine was condemned by the leaders of the world’s democracies. No one knows how far Russian President Vladimir Putin is willing to go. Europeans are being grimly reminded that we live in an uncertain and increasingly polarized world.
Europe before energy crisis
Russia’s war in Ukraine could escalate into a geopolitical confrontation that will roil the entire global economy. This new crisis comes at a time of already very high uncertainty, as central banks are beginning to normalize monetary policy and governments are shifting fiscal policies from emergency measures to structural changes.
Lena Sellgren is Chief Economist at Business Sweden.
(Photo: Business Sweden)
There is a high risk of political mistakes being made, and the war in Ukraine certainly doesn’t make things any easier.
After unprecedented Western sanctions, Europe could face a difficult short-term energy crisis if Russia cuts off gas and oil supplies in retaliation. This will hamper production and lead to higher energy prices, which in turn will fuel inflation, really hurting the economy.
Unfortunately, the prospects are bleak. To say the least, 2022 could have started much better. Dark times lie ahead as Europe faces the greatest security threat in decades and a burgeoning energy crisis at the same time.
More: Can the EU get by without Putin’s gas? A Brussels think tank says yes.