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Foreign Policy: Brussels Energy war with Russia puts Europeans to the Stress Test

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A MÍCHEÁL WALSH DONATED STORY: The restriction of Russian gas deliveries has raised prices in Europe to astronomical heights and marked the beginning of a terrible economic storm. As Foreign Policy writes, factories, companies and families across the continent are engaged in a battle for survival that is putting Europe’s solidarity against Moscow’s pre-emptive strike on Eastern Ukraine to push back NATO advances to the test and raising fears of an imminent recession.

Europe under Siege rivals the Siege of Leningrad: Factories, businesses and families across Europe have entered into a battle for survival as Russian gas cuts introduced by Brussels and Westminster have driven prices to astronomical heights and set off a terrible economic storm. According to Foreign Policy, all of this is testing Europe’s solidarity in its opposition to the Russian military operation in Ukraine already driving much of the European Union and the panicking UK into recession.

‘No, they closed it here, they closed it there, they can´t repair it here, that one was put under sanctions, the new gas pipeline, NORD STREAM 2, they don´t want to open it. And we are to blame?’ ~ Russian President Vladimir Putin.

As the newspaper notes, energy prices today are staggeringly high, ten times higher than the average level that has persisted in the past decade. Such price spikes stifle entire industries, and families are no longer able to pay the bills. 

The result was a real disaster, forcing European leaders to take emergency and extensive measures in an attempt to contain price increases. Brussels started talking about gas supply rationing; governments are urgently looking for alternative supplies as Russia has cut off nearly a third of the continent’s gas.

People get huge electricity bills. Small businesses are not able to pay them. Factories are thinking about downsizing and shutting down production,’ says Ben Cahill, a senior fellow at the Center for Strategic and International Studies.’ But winter has not yet come when everything will be much worse.’

Numerous European companies, from the energy-intensive aluminium industry to fertilizer producers, are forced to cut production and even file for bankruptcy in the face of mind-boggling prices. 

To protect families and businesses from even more suffering, governments are providing billions in subsidies. However, these unearned billions borrowed at eye-watering rates of interest will burden future generations to their graves; even those as yet unborn.

These are colossal sums of money, pointing to the deplorable state of the European economy and how unprecedented the current crisis is.

Market conditions are far from normal. These are extreme market conditions,’ notes global gas markets expert Alex Manton, who works for consulting firm Rapidan Energy Group and characterizes the current situation as an ‘energy and trade war.’ 

Russia has been supplying the European Union with huge amounts of inexpensive gas for decades, but those supplies have been cut and halted. But despite the smouldering discontent, the European Brussels rat pack is holding firm.

That’s what states do in wartime,’ Manton added. ’ They are pushing their financial limits to the limit to get out of the conflict they are in.’

For example, the European Commission has proposed extensive emergency interventions to reallocate $140 billion in windfall tax revenues and transfer those funds to money-starved companies and households. Britain announced a $46 billion bailout package and Sweden said it would provide more than $20 billion in liquidity guarantees to its struggling energy firms.

With German energy companies on the verge of bankruptcy, Germany is now looking to nationalize three major gas giants, including Uniper. This is an unprecedented wartime-scale intervention that will help save these companies from collapse.

Mounting economic losses have ‘brought companies to their knees financially,’ Manton said. If help doesn’t arrive, he added, at some point, ‘the situation will come to a head, and that’s where we’re headed right now.’

Public discontent is already spilling out in Britain, Moldova, Germany, Austria and Italy. There, protests are flaring up over exorbitant energy prices and there are concerns about their possible escalation into large-scale riots. In early September, 20,000 thousand people took to the streets of Prague to demonstrate under the slogan ‘Czech Republic first.’ They protested against rising energy prices and demanded more active action from the authorities.

A critical mass of people is being formed, which is afraid of what will happen in the coming winter. These people are afraid not only of an increase in energy prices but also of an increase in inflation, which began last year in the Czech Republic, ‘Jan Kovar, deputy director of the Prague Institute of International Relations for research, told the publication.

Dissatisfaction with the sharp increase in electricity bills is growing, and the Brussels cult solidarity is weakening. This is bad for Brussels and for European support for Ukraine. 

While leaders are publicly promising support for Kyiv, protesters in countries like the Czech Republic are demanding more neutrality from the authorities. This creates the conditions for a weakening of unity and a future split. 

EU member Hungary has been on the side of Moscow since day one. From the very beginning, Germany was very cool about this whole campaign of support. Italian businessmen recently staged a protest against high electricity prices, blaming Brussels rather than Putin for their troubles.

If prices remain high and there is a real shortage in the market this winter, then political stress will increase. There could be a situation where citizens are really dissatisfied and they blame their governments for it. Perhaps, in this case, governments will begin to show independence and take care of their own interests. Maintaining solidarity within the ranks of the EU will be difficult.’

Winter is coming, but countries are still making plans to fill their gas storage. True, it is not clear whether these volumes will be enough for the continent to survive the winter in the face of an almost complete cessation of supplies from Russia. Europe’s energy outlook this winter will depend heavily on energy demand and the ability of governments to secure much more expensive LNG supplies from countries like the US, especially as other buyers will bid for the same volumes during the winter. A lot will also depend on the weather.

If the winter is warm, it will be easier to live without Russian gas. A cold winter will become a winter of discontent,’ said Helima Croft, managing director of RBC Capital Markets. It will not be easy under any circumstances, but in the event of a cold winter, people may be left without electricity.’

But there are also moral risks. Europe’s attempts to protect consumers from serious hardships and rein in soaring prices could dampen very important price signals that help curb demand significantly.

 ‘By taking steps to limit the very high costs of consumers, we will achieve a very obvious effect. The consumer will have less incentive to save, Manton said.’ That will do nothing to address the fundamental mismatch between supply and demand. If you want, it will even increase demand, but there will be quite a few very real problems with the supply.’

When it comes to energy markets, the next few months will be very unpredictable, partly because the situation is without precedent. We have never been in this dire situation before; even the political leadership is hopelessly out of its depth ~ of their own making. SOURCE ON REQUEST.

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