Economists have recently warned the danger signs of an economic crisis are beginning to become clearer. In Norway and in the rest of Europe, high electricity prices have led to fears of rationing. According to economist Jack Allen-Reynolds, the shortage of electricity is likely to be accompanied by an economic crisis. Allen-Reynolds is an expert on European economics at Capital Economics. – In the coming months, we will see the impact of the price shock for energy, Allen-Reynolds says to news. – I absolutely believe that an economic crisis is starting to become more likely, he says. Jack Allen-Reynolds Photo: Capital Economics An economic crisis could lead to tighter conditions for households and businesses, and higher unemployment. In addition, the euro has weakened significantly against the US dollar. Already last autumn, electricity prices in Europe began to be abnormally high. However, there were few who predicted that we would reach the level we are at now, Allen-Reynolds believes. – The war has had a major impact on the global commodity market. Especially oil prices and gas prices are much higher than some had anticipated before the war began, he says. According to Allen-Reynolds, Capital Economics and other economic analysts had not expected to see electricity prices as high as they have been. – We expected oil and gas prices to fall this year. When households have to spend more of their income on electricity, they have less left to spend on other things. May be power rationing Economic historian Adam Tooze points out that the corona pandemic did much more damage to the global economy than the Ukraine war has done so far, but that we have already seen significant consequences of the Ukraine war on the world economy. Tooze is a professor of economic history at Columbia University, and is a regular guest on the Foreign Policy podcast, Ones and Tooze. EU countries import about 40 percent of their gas from Russia. Since the beginning of the war, there has been talk of what to do with Russian oil and gas exports to Europe. European countries have tried to scale down purchases of oil and gas from Russia, but prices have become so high that Russia still has good fossil revenues. Earlier this year, high oil and gas prices triggered demonstrations in Germany. Photo: FABIAN BIMMER / Reuters A report from the Center for Research on Energy and Clean Air from the first 100 days of the Ukraine war shows that Russia’s revenues from fossil energy are record high, even though they export less. According to the report, Russia’s fossil revenues are helping to finance the war in Ukraine. However, an energy boycott of Russia could backfire on European economies, says Adam Tooze. – Then you can expect an economic crisis, especially in Germany and Eastern Europe, says Adam Tooze. Many EU countries, including Germany, are largely dependent on Russian gas and energy. Now the fear of power rationing is spreading. At the NATO summit last week, German Foreign Minister Annalena Baerbock said that the country was in a “hybrid war”. Germany’s Minister of Trade and Industry, Robert Habeck, has already warned that the country is beginning to approach rationing. Three weeks ago, Russia decided to reduce its gas supply to Germany by 40 percent. Klaus Muller, head of the Bundesnetzagentur, announced last week that gas prices could triple. Adam Tooze is professor of economic history at Colombia University Photo: COLUMBIA UNIVERSITY The West wants oil price caps Last week, the G7 countries met for a conference in Germany. Among the topics they have discussed are the stabilization of the world economy and additional sanctions against Russia. During the G7 meeting, the United States proposed a price cap for oil, so that Russia’s revenues will be lower. Oil and gas prices in Europe are skyrocketing. If households have to spend more money on electricity, it could trigger an economic crisis. Photo: MIKE SEGAR / Reuters In recent months, Russia has increased oil exports to Asian countries, including India. But Allen-Reynolds believes it will not be able to replace the revenues from the EU and the G7 countries. Among other things, France has proposed importing oil from Iran and Venezuela, which have previously been sanctioned and thus have not had the opportunity to export oil. Is it realistic that Russia will agree to such a demand? – The idea is that the G7 economies are so large that Russia will have no choice but to lower oil prices, says Jack Allen Reynolds. During the G7 summit last week, US President Joe Biden promoted a price cap on Russian oil. Photo: Lukas Barth / APPhoto: Lukas Barth / AP Unsure whether the sanctions work The International Monetary Fund estimates that the Russian economy will shrink by 8.5 percent. The central bank has been sanctioned, and Russia was banned from the international payment system, SWIFT. Following the invasion of Ukraine, the West imposed extensive sanctions on Russia. This includes the country’s military, but also the economic institutions in the country. However, Jack Allen-Reynolds believes that the sanctions are working, and that they will significantly affect Russia’s economy already this year. Several foreign companies left Russia after the invasion of Ukraine. Photo: KIRILL KUDRYAVTSEV / AFP Last week, several media reported that Russia, for the first time since 1998, had defaulted on a debt repayment. However, Russia has said that it repaid the debt in May, but that the payment has been withheld from the Belgian banking company Euroclear due to the sanctions. – What Russia has done is to miss a payment. The signals it sends are that if you lend money to Russia, it is not certain that you will get that money back, says Jack Allen-Reynolds. Adam Tooze still thinks it is too early to say anything about the effect of the sanctions. – The simple answer is that we do not know if they work yet, says Adam Tooze. – You have to ask yourself what you think the sanctions are for before you can decide how successful they are. It is not clear to me that, for example, they intend to stop the war in Ukraine, or that they should help Ukraine win the war.
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Electricity prices could trigger an economic crisis – news Urix – Foreign news and documentaries
