A year later, Europe is still trying to digest the crisis resulting from the invasion of Ukraine

One year later: Europe digests the crisis stemming from the war in Ukraine (picture alliance / Uli Deck/dpa/)

The Russian invasion of Ukraine has precipitated enormous transformations in Europe. A year ago, the main global financial organizations published catastrophe scenarios for the European economies, which although they have been avoided for now, uncertainty remains for the future.

Vladimir Putin it plunged the region but did not lead to the feared collapse in the summer of 2022, when oil and gas prices soared to all-time highs.

The heroism of the Ukrainian people and the stubbornness of the Russian president project the conflict in time. The twelve months that have elapsed leave irreversible consequences in some cases. For the economy, after avoiding a recession, the conflict has caused convulsions in the areas inflationary, energetic and food.

The note is good if one thinks that an inflationary burst has been avoided. However, the rise in prices has had months with historical levels sufficient to erode economic growth, which had already been hit by the pandemic.

The European Union (EU) It is currently going through a period of stagnation: 0.1% growth in the Eurozone in the fourth quarter of 2022, and zero for the entire bloc. Data from statistical agencies say that the beginning of 2023 began with the same trend.

Europe’s vulnerability was exposed due to its enormous energy dependence on Russia. With the war unleashed these markets shot up. The imaginable reduction in supply caused the barrel Brent It will arrive, on March 7, 2022, at $140. The same day the WTI (reference for the North American barrel) passed USD 130. These values ​​unleashed a domino effect in the prices of all the European economies.

The energy crisis was not as harsh as expected (Europa Press)
The energy crisis was not as harsh as expected (Europa Press) (Eduardo Parra – Europa Press /)

However, the crisis was less than predicted, hand in hand with a winter without freezing temperatures. On Friday, February 17, the price of gas TTF I was in €48.90its lowest level in eighteen months after six months ago it had reached 338 euro the megawatt hour.

Unsurprisingly, this shock to the energy supply sparked inflation. Problems in the supply chain, economic sanctions and export blockades led to price changes on the gondolas, particularly for food. Ukraine and Russiatwo of the main grain exporting powers, pushed prices to an escalation not seen in the continent for several decades.

In parallel, this situation also brought an acceleration for the energy transition. The Europeans hurried the march to obtain other sources: they quickly filled their tanks with liquefied natural gas (LNG), thanks in part to purchases from USA and Middle East; France repaired its nuclear power plants quickly; Germany built a regasification terminal, and they even started up from old thermal power plants and new “green” projects throughout Europe.

The good reflexes allowed inflation in the euro zone to stand at 8.5% in January, according to Eurostat. While high, it has taken pressure off core prices in the economy. Globally, inflation is still expected to reach 6.6% in 2023 and 4.3% in 2024 on average, according to the IMF. But the pressure has not yet subsided among workers who saw their wages lose to the upward trend in products and services.

Another front still not tamed is the financial one. During these months of Russian aggression, the central banks tightened their monetary policy. The comfortable interest rates to bear the wounds of the Covid-19 pandemic are over. Financial institutions added points affecting credit, mortgages and consumption. This added, at the same time, instability in the countries exposed by their debt.

During the year 2022, the Federal Reserve from United States (FED) it adjusted 75 basis points each month, except in December when it slowed down with 50. It was the most intense monetary tightening since the eighties. Following this line, the European Central Bank (ECB) it raised its rates 300 basis points from July and announced a new tightening of 50 points at its next meeting on March 16.

Despite the fact that the worst omens were not registered, the European industry suffered, with this compendium of shocks, a “competitiveness shock”. Europe, which was always high in cost, saw its disadvantages increase. If you add that with the Inflation Reduction Act (IRA) The United States grants subsidies reserved for companies that produce on its soil, the continent runs the risk of a wave of relocations.

Now we have to look at the future of the conflict. Europe knows that the wallet to sustain itself is running out. The coffers face a veritable wall of debt. The last time interest rates were at this level, in 2008, the eurozone’s public debt stood at 70% of GDP, today it is 93%.

Only in France, went from 69% to 113 percent. The Italian risk premium, which measures the spread between the German ten-year bond and the Italian bond for the same period, at the peak of the stress reached close to 178 basis points. The government of Brussels is advising that there is no more waist. Germany either Netherlands they refuse to allow the euro tap to remain open. The plan for reforms and reduction of deficits, a condition to continue sending funds, faces social discontent

The scare did not pass. However, for the moment, the European economy has been able to stay afloat.

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