EU Leaders are under Pressure to Prolong the Effects of the War in Ukraine

Europeans are now finding that they have also fallen out of their war-related economic calculations. This is of great importance, since the EU it is mainly an economic and not a politico-military force.

Rising international oil and gas prices provide Russia with more foreign exchange earnings than it had before oil and gas exports before the invasion of Ukraine. Consequently, the financing of the war is secured, while the collapse of the Russian economy is not imminent, as estimated by government officials, officials and experts in the EU.

The six rounds of economic sanctions decided by the EU at the expense of Russia will pay off, to one degree or another, in the long run. This means that they do not affect the conduct of the war, nor do they cause much popular discontent with the Putin regime. It is noteworthy that the ruble covered all the losses it had after the Russian invasion of Ukraine and the announcement of the first financial sanctions, while interest rates of the Central Bank of Russia returned to pre-invasion levels with a further downward trend, as there is a huge surplus in the balance sheet and inflation is declining.

The Russian government estimates that the decline in GDP will be less than the 8% estimated for 2022. Most importantly, the Russians are trained in sacrifice, 80% -85% believe that they serve a national purpose and do not have the potential to exercise democratic control or political pressure on the regime to improve its policy.

The exact opposite is true in the EU. Governments are finding that the cost of war to the European economy may be higher than they expected, and are concerned about popular, political backlash. In the first months of the war, the EU continued the expansionary fiscal and monetary policy of the COVID-19 period.

Now, Brussels and European governments are realizing that the problem of COVID-19 is always with us, albeit in a recession, that energy had begun to run out before the Russian invasion of Ukraine and that inflation had intensified because of the first consequences of the war.

Economic sanctions against Russia, especially in terms of 70% -90% dependence on Russian oil by 2022, are combined with decisions on the so-called green transition that in the short term make the picture even more complex in its critical energy sector.

Energy costs are rising, Russia’s dependence on expensive gas remains and is reduced only on its own initiative when it deems it appropriate, and the risk of stagnant inflation increases over time (for more information please read the analysis titled “Emerging Stagnant-inflation in the Eurozone/EU & USA“). Inevitably, the European Central Bank (ECB) began to pursue a stricter monetary policy modeled on the US Federal Reserve, which is testing the resilience of many European economies, especially in the South and of course in Greece and Italy.

The question, then, is how much the economic situation in the EU will deteriorate and what will be the political reactions in countries of strategic importance such as Germany, France and Italy, where public opinion will hardly accept a significant and long-lasting drop in real income in the name of a big case, such as Ukraine’s defense against Russian invaders.

And in this crisis – which is in full swing – the EU does much more than its past, but the political and military shortcomings in European integration are so great that it does far less than the conditions require.

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