European Union disappearing as Powerhouse due to High Energy Costs

Boycotting Russia’s cheap pipeline gas after the beginning of Moscow’s special operation in Ukraine came at a price for Europe, given that pipelines are the most cost-effective way to transport the commodity and are difficult to quickly replace.

While next winter could pose a serious challenge to EU economies substituting Russian energy commodities, the larger problem is to rebuild European competitiveness in the coming ten years, French economist Jacques Sapir told Sputnik’s New Rules podcast.

However, a mild last winter allowed the Old Continent to avoid a critical energy crisis, despite gas prices going through the roof. Is the European economy out of danger now?

But Russian gas didn’t stop at once. It decreased progressively and even now there is still a small amount of Russian gas going to Europe.

So, the necessity to substitute gas with LNG and to build new stations for regasification – also to build new ships to transport this liquid gas, and these ships are taking time to be built – this has not been a major problem this past winter for just one reason.

This winter has been particularly mild. But if the next winter, if winter 2024 is harsh, then there will be a serious problem, because the complete substitution of Russian gas by LNG will take around three to four years.

Europe had grown reliant on Russian gas since the 1960’s. In 1967, the Brotherhood gas pipeline running from the USSR was connected with the gas infrastructure of Czechoslovakia.

In 1968, the Soviet Union began supplies to Western Europe following the striking of a contract with Austria’s OMV.

Over time, cheap Russian energy become a driver for Europe’s economies, especially for Germany which decided to close its nuclear power stations and replace them mostly by gas.

Western energy sanctions against Russia shook the whole energy model of European countries to the roots and the simple fact of having to substitute Russian gas with LNG made costs hover by 20 to 30% higher, per Sapir.

A report from the Bruegel Institute indicates that EU countries had to spend about €800 billion in 2022 to protect households and consumers from rising energy prices.

Europe as a global economic player began to lose its clout compared to the United States, China, and other players even before the Ukraine crisis: the Old Continent’s global share of gross domestic product was about 36%, while by 2020 it had contracted to 15%.

As per Sapir, the actual decline of Europe started in the 2010s and was linked to industrial choices made by different countries, and also by the fact that Germany has pumped up consumption and imposed on these countries some quite radical measures on budget adjustment, which led to a series of crises in Greece, Spain and Italy.

Another problem was the shock of COVID-19 on European economies which hurt them harsher than the USA or China.

Now, even EU longtime flagship Germany has found itself between a rock and a hard place. The country has entered a technical recession with GDP -0.5% for the last quarter of 2022 and -0.3% for the first quarter of this year.

Coming on top of this long-term problem, having a new energy problem in Europe, is now confronting European politicians with some very, very hard decisions: How to restore the competitiveness of their countries; how to do so without shaking considerably the structure of the European Union.

We can’t know the solutions to these problems, but they have to be found in the next five or next ten years or the European Union will progressively disappear as a major actor in the global economy.

Sputnik / ABC Flash Point Europe News 2023.