Economic crisis: will we make it through the winter?

30/07/2022 · Nicolas Mertens

This July, leafing through the international press, one can see that the economic crisis is already being felt in practically all of Europe. The main problem for the population is the rise in the price of food, heating and electricity. In many countries, people have already taken to the streets, and some governments have already fallen. Under these conditions, will the European Union make it through the winter?

Without wishing to sink into the alarmism the media played on throughout the Covid crisis, it does seem that an unprecedented economic and political crisis is emerging within the European Union. It is worth finding out about it, calmly and objectively, in order to clarify our perception of the situation. All it takes is a quick look at the situation in neighbouring countries.

Germany in the (frozen) desert

Economically, the most important of our direct neighbours is Germany, the leading economy and above all the leading exporter of the European Union^{^[1]}, with a trade surplus averaging more than 20 billion euros a month before the Covid crisis^{^[2]}^{^[3]}. However, following the nuclear phase-out carried out from 2011 to 2022^{^[4]}, Germany is very dependent on imported raw materials, both to run its industry and for its population’s electricity and heating consumption^{^[5]}.

This translates into very large gas needs^{^[6]}. That is why the gas shortage resulting from the increasingly extreme international sanctions imposed by the European Union since the end of February^{^[7]} has already caused a massive economic slowdown in Germany. For May 2022, the German trade balance shows a deficit of one billion euros, the first month in deficit for the German economy since 1991^{^[8]}^{^[9]}. And as everyone knows, when the German economy is doing badly, the whole of Europe suffers.

The energy crisis in Germany is unprecedented since the European Union was founded, and it is already being felt in striking ways. The country’s largest housing company, for example, has just limited the heating level in the properties it rents out. A million homes are potentially affected^{^[10]}. And Hamburg, the country’s second city, whose metropolitan area has 5 million inhabitants, is openly preparing to restrict their access to hot water very soon^{^[11]}.

The rising price of basic necessities, such as food and heating, is also a source of social tension. From 15 to 16 July, to demand pay rises to offset inflation, dockers at all the country’s main ports, including Bremen and Hamburg, went on a 48-hour general strike^{^[12]}, paralysing the country’s sea imports and exports of goods. Clashes with the police broke out and there were injuries.

If Germany, Europe’s main economic engine, seems to be struggling, what can the other countries expect?

Record inflation rates across Europe

The European Union is currently experiencing an exponential rise in inflation^{^[13]}, and many European countries are breaking their historical records for monthly price increases, already bringing people out onto the streets.

As a reminder, “inflation” means rising prices. As the price of energy and raw materials rises, first because of the quantitative easing practised without limit since 2008, then because of the international sanctions imposed by the European Union, the prices of consumer goods, first and foremost food and heating, are rising. While wages, for their part, are not.

After April and May saw extraordinary inflation in several countries such as Poland, Slovakia, the Czech Republic and the Baltic States^{^[14]}, June was without doubt a black month for the European economy. Inflation, for example, reached its highest rate in 39 years in Denmark^{^[15]}, 37 years in Spain^{^[16]}, 33 years in Norway^{^[17]}, almost 30 years in Portugal^{^[18]}, 24 years in Bulgaria^{^[19]}, etc. The picture is the same in practically every European country. Price increases are high and in several countries exceed 15% a month.

The highest inflation rate was recorded in Estonia, with 20% for May and 22% for June, which has already brought down the government^{^[20]}.

Is this the moment for the European Union to make life hard for its farmers?

To make matters worse, the European Union is making life hard for its farmers. In the Netherlands, Spain, Italy and Poland^{^[21]}, they have taken to the streets en masse to protest against the European directive aimed at restricting emissions from their farms. In Holland, the government’s stated aim is to cut livestock farmers’ cattle herds by 30%, de facto condemning many small farmers to closure^{^[22]}.

The crisis in agricultural production resulting from the entry into force of these European directives is certainly not likely to have a positive impact on food prices in Europe. Is it wise of the Brussels elites to continue this policy towards our farmers?

Political crises in Europe and neighbouring countries

In France, the president’s party suffered a stinging defeat in the parliamentary elections, which saw the opposition parties of left and right achieve historic scores^{^[23]}, which notably allowed them to defeat in parliament a bill extending the health pass for travel abroad^{^[24]}.

In Italy, besides the farmers’ protests, taxi drivers took to the streets to oppose neoliberal legislation planned for their sector^{^[25]}, but there were also general demonstrations against the government’s tax and social plans. After losing a confidence vote in parliament, the prime minister was forced to resign^{^[26]}.

Around the European Union, the situation is no better. In Albania, for example, demonstrations broke out to protest against rising energy and food prices^{^[27]}. In North Macedonia, demonstrations also broke out. There, they are directed against the integration plan Ursula von der Leyen is trying to impose on this small Balkan country^{^[28]}.

In Britain, a country that was at the forefront of imposing the international sanctions regime, the government has already fallen. Prime Minister Boris Johnson, a leading figure among the Western hawks, was forced to resign after being disowned by a large number of his cabinet members. The catastrophic economic situation in which he leaves his country is not unrelated to his departure. In England too, inflation has hit a record rate, the highest in 40 years^{^[29]}.

For many of us, born after 1970, the current and coming economic crisis is unlike anything we have known in our adult lives, or even in our entire lives.

On the international stage, the European Union’s approach is not being followed

Following the G20 summit held from 15 to 16 July in Indonesia, Josep Borrell, the European Union’s foreign affairs representative, could only acknowledge that, in the current crisis caused by the sanctions, the West “is globally losing the battle of the narrative”^{^[30]}. Unlike all previous international crises since 1991 and the start of its period of hegemony – which may be coming to an end – this time the countries of the rest of the world are not aligning themselves with the West’s position.

Neither China^{^[31]}, nor India^{^[32]}^{^[33]}, nor the countries of Africa^{^[34]}, nor the countries of Central or East Asia^{^[35]}, nor the Arab^{^[36]} or Turkic-speaking countries^{^[37]} among them, nor the countries of Central America^{^[38]}^{^[39]} or South America^{^[40]}^{^[41]} are following the Western narrative. As a result, none of these countries of the world has joined the international sanctions imposed by the Western alliance^{^[42]}. This has not been seen since the end of the Cold War.

The 150 countries that are not joining the sanctions cooked up by the West today account for more than 80% of the world’s population and 40% of the world economy. Is this linked to the fact that China overtook the United States as the world’s largest economy between 2016 and 2020^{^[43]}^{^[44]}? Be that as it may, it does seem that, for the first time since the start of its hegemony in 1991, the Western alliance is no longer able to decree the economic banishment of a nation by the rest of the world.

It therefore seems that, following the sanctions the European Union is ultimately inflicting on itself, the world’s other economies are replacing trade with Europe by trade among themselves^{^[45]}^{^[46]}, regardless of Western preferences. Everything suggests that the European Union is consequently preparing to experience its first serious economic crisis. Is this crisis not self-inflicted?

To make matters worse, all this is taking place in a European economy already weakened by two years of mistakes in managing the Covid crisis, and by the resulting economic damage, which was also self-inflicted. If we realise that we are harming ourselves blow after blow, isn’t it time to remedy it by changing our attitude?

How much longer can the European Union hold out?

According to the controversial Hungarian Prime Minister Viktor Orban, “We initially thought the European Union had shot itself in the foot with the sanctions; we now realise it has shot itself in the lungs and can no longer breathe”^{^[47]}.

According to him, “What we are seeing at the moment is untenable [for Europe]. » and “If it carries on like this, they [the sanctions] will kill the European economy”.

He adds that, again in his view, “The moment of truth must come in Brussels, when the leaders admit that they miscalculated, that the sanctions policy was based on wrong assumptions and that it must be changed.”

Without giving the Hungarian head of government a platform to promote his ideas on other subjects, how can one say he is wrong on this specific point? For taking measures in a hurry on the basis of false assumptions can only remind us of the disastrous handling of the Covid crisis.

If this disastrous management has indeed been repeated in this crisis too, as unfortunately seems to be the case, how much longer will the European Union hold out? Will we see the sanctions lifted under pressure from the street? Or a gradual disintegration of the European Union as the situation deteriorates in some Member States? And, if so, will it happen before or after the winter that is already fast approaching?

Nicolas Mertens, journalist at Bam!

^{^[1]} https://www.larousse.fr/encyclopedie/divers/Allemagne_activités_économiques/185846

^{^[2]} Institut ifo : l’excédent commercial allemand a encore augmenté | Press release

^{^[3]} Exporte im Mai 2022: -0,5 % zum April 2022 - Statistisches Bundesamt

^{^[4]} https://www.francetvinfo.fr/monde/europe/allemagne/sortie-du-nucleaire-l-allemagne-bon-ou-mauvais-exemple_3698649.html

^{^[5]} Allemagne : les chiffres clés de l´énergie en 2021

^{^[6]} Éolien et Gaz : la preuve par l’exemple allemand

^{^[7]} European Union sanctions | EEAS Website

^{^[8]} L’Allemagne, première puissance économique de l’Europe, enregistre un déficit commercial pour la première fois en 30 ans - Business AM

^{^[9]} Exporte im Mai 2022: -0,5 % zum April 2022 - Statistisches Bundesamt

^{^[10]} Germany’s biggest landlord turns down the heat as Russian gas shortage bites

^{^[11]} Gas shortage emergency would push Hamburg to ration hot water, says senator | Euronews