Will the economic crisis change the European position towards the Ukraine war?
The European countries, when they rushed to provide support to Ukraine in its conflict with Russia, did not believe that the war that erupted on February 24, 2022 would be long, and that doubts would deepen with it about the future of economic conditions in Europe, which was barely recovering from the repercussions of the Covid-19 pandemic; The Ukrainian war contributed to inflation reaching record levels and triggered a food crisis after the Ukrainian grain exports were halted as a result of the Russian naval blockade, which was accompanied by a wild rise in food and energy prices, so that European economies are facing an economic crisis that may extend, according to expectations, to Next year. What is noteworthy here is that the length of the war, and the high economic cost it entails for European countries, raised many questions about the possibility of continuing the united European position towards intensive support for Ukraine, and imposing more pressure on Russia.
indicators of the crisis
There are indications that there is a real economic crisis in European countries, which can be reviewed as follows:
1- GDP decline: According to Bloomberg, citing a leaked draft from the European Union’s executive office in Brussels, the GDP of Central and Eastern Europe fell from 98.7% to 97.1%, the lowest level since April last year; This represented a noticeable decline from its recent high of 120% in February of this year. In light of these variables, the European Commission is expected to reduce its forecast for GDP in the euro area for 2023 from 2.3% to 1.4%, and the inflation rate in the single currency area is expected to reach 7.6% this year before declining to 4% Next year.
2- High rates of inflation:In light of the ever-increasing price hikes caused by the Russo-Ukrainian war, the European Union has raised its inflation forecast to 8.3% in 2022 and 4.6% in 2023; This is an increase from expectations last May that inflation rates in 2022 would reach 6.8% and 3.2% in 2023, while the European Commission’s expectations rose from 6.1% to 7.6% in 2022, and from 2.7% to 4%. In 2023, these expectations came from the European Commission on July 14, at a time when fears were exacerbated by rising prices to record levels in Europe, especially with the latest reading of the inflation rate in June showing a record rate of 8.6% in the region. euro. Perhaps this high inflation in the euro area, which is made up of 19 countries, is mainly due to the high costs of natural gas, which were exacerbated by the war in Ukraine and the European escalation against Russia, which was matched by more Russian intransigence and pressure with the gas card.
3- Raising interest rates: as a result of an exaggerated increase in prices, especially the prices of food and energy commodities, and the spread of inflation to a large extent; Since the beginning of the Russian war on Ukraine, the European Central Bank has been under great pressure to raise interest rates in order to combat inflation and protect the euro from continuing to decline. However, raising interest rates, although it aims to reduce inflation rates, on the other hand represents a high-risk strategy for many countries; For example, there is growing concern in the UK that big increases in interest rates from the Bank of England will plunge the British economy into a severe recession, especially with the devaluation of the pound sterling.
4- The depreciation of the euro: In a precedent that did not occur for nearly twenty years, the value of the official currency of the European Union (the euro) fell to its lowest level to become equivalent to the US dollar; The single European currency fell to $0.9952 on July 14, a level not seen in the European Union since the end of 2002. Fears about further depreciation of the euro are exacerbated, especially if the energy price shock caused by the conflict in Ukraine pushes the European Union into crisis. Long term economic.
5- Stock market profits fluctuation: European stock markets have witnessed a clear fluctuation in profits during the recent period; As the European stock markets declined during trading on July 8, after the gains they achieved in the previous session, due to the decline in the leading shares in the mining sector, and this decline continued for the following week; Shares in the mining sector fell on July 14, after the euro fell by 3.8%, while banking shares fell by 3.1%, while the travel and entertainment sectors were the only gainers, up 0.5%.
However, this decline did not last long; Stocks rose again on July 18, similar to the global recovery in the stock market, with the hope that China will move forward with its stimulus plans in light of the spread of Covid-19, in addition to the decline in fears about the US Reserve raising interest rates by 100 basis points. This month, but hope is tainted by a lot of caution and anticipation on the part of European investors as well.
6- Declining economic growth rates: On Thursday, July 14th, the European Commission reduced most of its economic growth forecasts; After it expected last May that the growth rate would reach 2.7% this year, and 2.3% next year for the European Union and the Eurozone; It currently expects the European economy to grow by 1.5% next year, while the eurozone economy is likely to grow by 2.6% in 2022, and the European economy by 1.4% in 2023.
7- The growing possibility of an economic recession: Expectations of an imminent recession are increasing in European countries; The European Union is likely to face a major recession as the continent’s post-pandemic recovery subsides, and the winter energy crisis subsides over the next year. This probability comes at 45%, according to an opinion poll of economic analysts issued by Bloomberg in the month of July; This is up from 30% last June, and Germany (the largest economy in Europe) is likely to be the most vulnerable to deflation and recession as it is the most dependent among European countries on the Kremlin for natural gas.
many pressures
The previous economic indicators are inseparable from the scene of the conflict in Ukraine, and the dynamics of European interaction with the conflict; It is possible that the war and its economic repercussions, especially if it is prolonged, will impose many pressures on the European position in support of Kiev, which may prompt European countries to rethink their current approach. In general, this perception is linked to a number of main dimensions represented in the following:
1- The escalation of political chaos in some European countries: A number of European countries were subjected to political tensions as a result of the economic crisis, which is now casting a shadow over their citizens. These tensions are, in a way, reflected in European support for Ukraine; On the one hand, it makes European governments direct the majority of their efforts to deal with internal crises. On the other hand, these tensions are losing Kyiv some of the main political allies in European countries who have been spearheading the campaigns in support of Ukraine over the past months; In Britain, for example, British Prime Minister Boris Johnson resigned from the presidency of the Conservative Party, after a series of resignations of party members, after numerous accusations of mismanaging the economic file amid the current challenges.
Italy has also become the focus of attention, in light of the possibility of a new political chaos, after the resignation of Prime Minister “Mario Draghi” on July 21, and the Italian President’s announcement of the dissolution of Parliament and the call for early parliamentary elections on September 25, 2022. This came in light of the Commission’s expectations. The European Union stated that Italy will grow by only 2.9% this year, and only 0.9% next year, and the situation continues to increase pressure on European governments in light of the challenges of high energy and food prices and the spread of inflation.
2- Fear of a severe energy crisis: The European position on the Ukrainian war, and the Union’s rejection and condemnation of Russian military intervention, led to the disruption of Russian gas supplies to the European Union countries. The European bloc is likely to experience a potential energy crisis next winter, if Russia completely shuts down natural gas supplies. This is expected, especially in light of Russian President Vladimir Putin’s employment of energy as one of the tools of conflict with Western countries, and then pressure on European countries and forcing them to rethink their stance towards Ukraine.
3- The possibility of the economic crisis restricting European aid to Ukraine: Numerous pressures from inside and outside led to the European Union temporarily suspending its aid to Ukraine, with the escalation of fears of the gas crisis inside Europe, and the successive warnings by analysts and economic experts of the dangers of extensive spending on the war in Ukraine and its repercussions On the European citizen, the European Union abandoned its high-profile promises of a massive aid package to Ukraine.
However, that thought did not last long; On July 11, the President of the European Council, Charles Michel, said that the Council of the European Union had agreed to allocate a fifth package of military aid to Ukraine worth 500 million euros, bringing European support in the form of military equipment to the Ukrainian armed forces to about 2.5 billion euros. So far, in a situation that threatens the political stability of the European Union if this is accompanied by an aggravation of the economic crisis.
4- The growing division in the European position on the Ukrainian war: despite the great solidarity of the European community for Ukraine and its support for sanctions against Russia, it is divided over the long-term goals of the official European position; According to a study issued by the European Council on Foreign Relations, there is a split in the European community between two camps: the “peace” camp, which wants to end the war as soon as possible, which was estimated at 35% of the European community, compared to 22% in favor of the “justice” camp, which It makes punishing Russia the most urgent goal.
The study showed that the peace camp is larger than the justice camp in all European countries except Poland; European citizens worry about the cost of economic sanctions and the risk of nuclear escalation; They therefore oppose a protracted war that would exacerbate the economic crisis and increase economic pressures at home. Only in Poland, Germany, Sweden and Finland is there significant popular support for increasing military spending to provide more military support to Ukraine.
Russia paper
In general, the economic situation in European countries exacerbates pressure on national governments, and the confusion between their attempt to reduce the impact of high prices on families, and the policies of the European Central Bank, which often come in light of these economic conditions, and in line with the policies of central banks around the world to raise interest rates. , to the detriment of the European citizen. Add to this the energy crisis that has been going on since the beginning of 2021, which is due to the Russian pressure on Europe with the gas card, and the crisis has worsened to a much greater degree after the full European bias towards Ukraine and condemnation of Russia, and even the provision of financial support for arming Ukraine.
President Putin is now increasing pressure on the European Union; In recent statements to him on July 19, he announced that the amount of gas pumped through the Nord Stream pipeline to Germany will drop by more than 60 million to 30 million cubic meters per day, if the turbine from Canada is not replaced urgently, as he warned. The West believes that sanctions imposed on Russia will destabilize the oil market and raise energy prices, which will certainly lead to more pressure on Europe regarding its stance on the war in Ukraine.
