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The economics of war: Europe’s pain now, Russia’s later

BusinessThe economics of war: Europe's pain now, Russia's later

Russian involvement in Ukraine’s conflict is causing increasing amounts of concern throughout Europe. Italy’s food banks are serving more people. German authorities are turning down the air conditioning as they prepare to limit natural gas and restart coal plants.

More bailout requests are expected in the near future from a large utility. Dairies are concerned about how to sterilise milk. Against the dollar, the euro has fallen to its lowest level in more than two decades.

Because of these stress spots, Europe is in risk of slipping back into recession just as the economy was recovering from the COVID-19 epidemic. The Kremlin has been progressively cutting off natural gas supplies to keep industry running smoothly.

Russia, a big oil and natural gas exporter whose central bank is flexible and has years of experience dealing with sanctions, is profiting from the high energy prices caused by the conflict.

Even if Russia avoids a total economic collapse, analysts predict the conflict will have a long-term impact on its economy, including less investment and reduced salaries for the Russian people.

With historic inflation of 8.6 percent, Europe’s greatest immediate task is to weather the harsh winter without suffering from devastating energy shortages.” Increased energy costs are trickling down to companies, food prices, and petrol tanks across the continent, which is heavily reliant on Russian natural gas.

Industries that use a lot of energy, like as steel and agriculture, are feeling the strain of the crisis, which might lead to gas rationing in order to keep people’s houses safe.

200,000 litres (44,000 gallons) of fuel oil have been stocked up at the major German dairy cooperative Molkerei Berchtesgadener Land in the town of Piding outside of Munich in case the electricity or natural gas to its turbine generator is shut off.

As a result, a million litres of milk each day are produced by the 1,800 farmers that are part of the cooperative. A milking halt would leave an ocean of milk with nowhere to go if dairy cows were to be milked everyday.

If the dairy doesn’t work, “the farmers can’t either,” said Bernhard Pointner, the managing director. “Farmers would then be forced to throw away their milk.”

Over the course of an entire year, the dairy consumes enough energy to power a whole family’s house for only one hour.

As a precaution, the dairy has stockpiled packaging and other supplies in the event of an electricity shortage: “We have a lot hoarded ” for a few weeks at least.”

The problems of the economy are also discussed at home. According to consumer advocacy organisations, the average Italian family will have to pay an additional $681 this year just to eat themselves.

Soup kitchens and food banks in Lombardy’s region are worried about a rise in the number of families in need, according to Food Bank of Lombardy President Dario Boggio Marzet. Their month-to-month expenses have increased by 5,000 euros in the last year.

An astute observer of food inflation is Jessica Lobli, a young single mother from the Paris district of Gennevilliers. As a substitute for Nutella or branded cookies she’s cut down on her milk and yoghurt intake.

Despite the dire circumstances, Lobli, who makes between 1,300 and 2,000 euros a month working in a school kitchen, believes that his family must continue to feed themselves in order to live.

It went from 150 to 200 euros to 100 euros in June, a significant decrease in her food budget. During the summer, her family doesn’t eat as much, but she is worried about September, when she will have to purchase school supplies for her 15-year-old daughter and 8-year-old son, further eroding her budget. She isn’t alone.

Emmanuel Macron, the French president, says that the administration plans to preserve energy by turning down public lights at night and implementing other measures. Officials in Germany are doing the same thing, pleading with citizens and companies to conserve energy, and mandating public buildings to use lower heating and cooling settings.

It comes as a result of Russia shutting off or limiting natural gas to a dozen European nations. Fears have been raised that the Nord Stream 1 pipeline between Russia and Germany would not reopen after planned maintenance last week, as well.

Uniper, Germany’s largest Russian gas importer, has requested government assistance after being pushed between increasing gas costs and what it is authorised to charge consumers.

At ING, chief eurozone economist Carsten Brzeski believes that rising prices will lead to a recession by year’s end. In the long run, Europe’s economic development depends on whether governments are able to make the large investments necessary for the transition to a renewable energy economy.

According to Brzeski, the only option left is to hope that everything will go back to normal, but this won’t happen.

Despite Europe’s economic woes, Russia has managed to stabilise its currency exchange rate, stock market, and inflation via considerable government involvement. As Western clients pull back, Russian oil is finding more takers in Asia, albeit at reduced rates.

Kremlin’s economic strategy after sanctions after the 2014 takeover of Ukraine’s Crimea peninsula was to keep debt low and to force enterprises to source their components and food domestically.

In the mall, Vkusno-i Tochka, the McDonald’s replacement, has renamed itself as Vkusno-i Tochka but nevertheless serves the same menu as the old Krispy Kreme.

440 kilometres (273 miles) from Moscow, Sofya Suvorova lives in Nizhny Novgorod, one of Russia’s poorer districts.

“We basically don’t order takeout meals any more,” she stated while shopping at a grocery. With tiny children, it used to be really handy. Cafes are becoming a rarer sight for us. Many adult activities, such as going to concerts and the theatre, had to be curtailed in order to save money for the kids.

Inflation is dropping, but the ruble’s exchange rate is higher than before the conflict, according to economists.

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