eco TV Week

From one crisis to another, how does Europe respond?

4/22/2022

As a result of the war in Ukraine, the energy shock experienced in Europe is questioning the economic recovery. It also highlights the urgent need for a transition to carbon neutrality.

Jean-Luc PROUTAT

TRANSCRIPT // From one crisis to another, how does Europe respond? : April 2022

The military invasion of Ukraine and the series of exactions that have followed have raised a wave of indignation in Europe and triggered unprecedented solidarity. Officials, private companies, associations or citizens have been mobilising for weeks on a large scale to help and welcome civilians who have fled the war.

At the level of the European Union, unprecedented sanctions covering financial, trade, or diplomatic fields have been imposed on Moscow and could be reinforced.

Being first a human tragedy, the war in Ukraine constitutes a threat for the global economy that many observers, starting with the IMF, consider significant.

Russia, being among the first producers and exporters of fossil energies. Gas and oil prices have surged when they were already extremely high following the post-COVID recovery. There are other tensions as well. Prices of agricultural raw materials, such as wheat, but also of metals have sharply increased due to the role played by Russia.

For our economies, this means rise in production costs and inflation figures which, month after month, are reaching record highs. We are close to 8% in Europe. This has a negative impact on household purchasing power, particularly for the lowest incomes.

Consumption, investment and activity will be slowed. According to INSEE, the French economy could lose up to one point of GDP growth in 2022 due to the consequences of the war. This might be worse in Germany whose dependency on fossil fuels is high (it represents nearly 80% of the energy mix since the exit from nuclear power) and concentrated in Russia.

Since the beginning of the crisis, European governments have searched for new options like diversifying the sources of supply. That's why the European Union signed with the United States an agreement to increase by 70% its imports of liquefied natural gas. Tariff shields, cheques, lower fuel taxes have been implemented to protect consumers.

However, these are exceptional (and expensive) measures which put the emphasis on another emergency:

  • to hasten the transition
  • to renewable and low carbon energies.

Whose first advantage is to help tackling global warming, while some of them – like wind or solar energies – can be available for free.

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