Saturday, May 27

The Ukrainian war bill

1% of global GDP growth. That is what will cost the war in Ukraine to all the economies of the planet, according to the Organization for Economic Cooperation and Development (OECD). The bill will be higher in Europe, due to its dependence on Russian gas and oil: the international organization points out that the war will reduce European economic growth by 1.4%. Apart from the accuracy with which these figures must be taken when the conflict is still open, they serve to get an idea of ​​the magnitude of the economic consequences of the conflict. Before the invasion, the OECD estimated a growth of 4.5% in world GDP for this year. Theoretically, the specter of recession is far away, but this does not mean that the effects of the war are not especially damaging in certain sectors, such as transport or agriculture. The inflationfor which the same report forecasts an increase of 2.5%, will weaken the post-pandemic recovery and force central banks and governments to adopt measures (the United States Federal Reserve has already raised interest rates this week , for the first time since 2018).

When the European Union and the United States approved applying economic sanctions against Russia by the invasion of Ukraine, they did it fully aware that the coup would end up having a return path. The main objective of financially isolate Vladimir Putin’s regime and cornering the economic elite that supports it is having results in the Russian economy: the ruble has collapsed, numerous multinationals have left the country and its debt has been classified as a junk bond. Russia has managed to avoid the first danger of suspension of payments (‘default’), although it is not so clear that it can face the following bond maturities. In a globalized world, it is inevitable that Russia’s economic suffocation will not also have effects on the very countries that promote it. And beyond the approved sanctions, the armed conflict has consequences, such as the fall in exports of wheat and other cereals from two major producers such as Russia and Ukraine. All this translates into a rise in prices in general, especially energy prices, in Europe. The risk that citizen discomfort due to the rise in the price of basic products will be taken advantage of by populists should not be underestimated.

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The EU could not take any other decision than to curb Putin’s expansionist ambitions and help Ukraine to defend itself from an illegal attack, but this aid has its cost, as the European institutions try to explain, with greater or lesser success, when they ask for an “effort » to society. The same society that, on the other hand, is being exemplary in its solidarity with Ukrainian refugees. The effort that citizens can make, however, should not go alone. Europe will have to do more than “turn down the heat” to reduce Russian gas consumption, as proposed by the EU’s High Representative for Foreign Policy, Joseph Borrell. Accelerate the Midcat gas pipeline project between Spain and France, for example. Or adopt urgent measures to contain the prices of electricity, gas and gasoline. The Spanish Government has promised to do so, but it is summoned to the meeting of the European Council on the 29th. The European countries have delayed a genuine energy debate for too long. The war in Ukraine shows the error of not having done it before.

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