The EU has no plan for life without cheap Russian energy, so what happens next? — RT World News
As Germany records its first trade deficit in 30 years, the outlook for Western European industry looks bleak thanks to US sanctions on Russia
Germany’s foreign trade balance in May showed a deficit of 1 billion euros. This has led many analysts to question the future of the country’s economy and the prospects for the European Union in general.
The bad news doesn’t end there either. Since July 3, Total World Market Capitalization of Germany, i.e. the total value share of German companies on global stock exchanges, was at a historic low of 1.97%. Meanwhile, on July 5, the euro fell to its lowest level against the US dollar since 2002.
Robin Brooks, chief economist at the Institute of International Finance, summed up the German trade situation quite well. “Germany’s growth model has been to import cheap energy from Russia, use it to assemble manufactured goods, and export those goods to the rest of the world. While Germany is now looking for new energy suppliers, its trade balance and that of the euro zone will deteriorate. he wrote on Twitter.
The question is whether this decline is permanent or not. Peking University finance professor Michael Pettis also shared his opinion on Twitter, but he said Germany’s trade deficit was not that historic. “Germany will only have gone from permanent surpluses to permanent deficits if there has been either a permanent increase in German investment or a permanent decrease in German savings,” he said.
Pettis continued that none of these things happened, with the first being « unlikely » and the second having « nothing to do with Germany’s recent trade balance adjustment. » For this reason, he considers the situation temporary.
It seems reasonable, however, that there is a clear correlation between rising energy prices and this blow to German industry. Rising energy prices also imply reductions in savings due to inflation. On July 7, Germany’s neighbour, the Czech Republic, announced a foreign trade deficit of almost a billion dollars, which reinforces the correlation between the rise in energy prices in Europe and the fall exports.
So the main problem seems to be exactly what Brooks has exposed, namely the EU’s power source. If indeed cheap Russian oil and gas are permanently cut off from the EU, then logically the effects of this on EU economies will be permanent – unless, in a highly unlikely scenario, they come up with a supply alternative that is both sufficient and at a comparable price.
One solution on the table is for the EU to import liquefied natural gas (LNG) from the United States. However, US LNG shipments to the EU and UK have already increased since political tensions between Europe and Russia began. According to the United States Energy Information Administration, the United States exported 74% of its LNG to Europe in the first four months of 2022, compared to 34% the previous year. But that apparently was not enough to keep European energy prices stable.
This raises a fundamental question, which is whether the European Union can really afford to maintain its sanctions against Russia. Members’ business models are simply not compatible with the reality created by their sanctions, which is already harming people’s well-being and leading to social and political unrest.
The foreign policy of the European Union is supposed to follow the doctrine of “strategic autonomy”, but what is happening is neither strategic nor an act of autonomy. There is no doubt that the situation in Ukraine is horrific and has led the Europeans to question the region’s existing security architecture, but, if NATO’s latest strategic concept is any suggestion, the gunfire are called from Washington.
Renowned international relations scholar John Mearsheimer recently lamented in a speech that « History will judge the United States and its allies very harshly for their senseless policy toward Ukraine. » In fact, the dominant Allied policy on Ukraine is doing everything to ensure that the conflict is prolonged – which has the double threat of destroying Ukraine and damaging Europe’s future economic prospects.
This is because the longer the conflict drags on, or if it continues indefinitely, it means that the bifurcation between Russia and the West will be permanent. And it follows logically that this will impact the economic model of European countries, especially Germany. If this is the eventuality we are headed towards, then the fate of the EU becomes a question.
Already, residents of Prague, the Czech capital, are starting to joke that in a few years Europe will be nothing more than a summer vacation spot for Americans and Chinese. But are there really enough jobs in the tourism industry for all of us here? And can we all resist the winter shoulder season?
All kidding aside, I think Germany’s trade deficit is significant. In a few days, the trend could increase if other European industrial countries post similar deficits. At the very least, it should raise alarm bells about what exactly the European Union’s long-term plans are vis-à-vis Russia and whether or not European industry can survive with sanctions on the Russian energy.
My bet is that he can’t. And it shows how blindly following Washington’s foreign policy is, time and time again, destructive to Europe.
The statements, views and opinions expressed in this column are solely those of the author and do not necessarily represent those of RT.