EU economy hit by sanctions blowback

BRUSSELS－The European Union has slapped five rounds of sanctions on Russia since its conflict with Ukraine erupted two months ago.

The sanctions, which are aimed at crippling the Russian economy, have not achieved the desired effect. Instead, the blowback from the measures is eating into the European economy, adding to stagflation risks in the region.

In its latest round of sanctions, the EU placed an embargo on coal imports from Russia and moved to reduce its reliance on Russian oil and natural gas, actions that compound the energy supply crunch in the bloc.

As a result, natural gas prices have skyrocketed in Europe. Some countries in the region are mulling burning more coal to generate electricity, a setback to Europe's ambitious green transformation. Under the European Green Deal, the EU aims to drastically reduce emissions so that it can be climate neutral by 2050.

At the same time, the EU is scrambling to secure energy supplies from other countries. Countries including Germany are gearing up for more imports of liquefied natural gas from the United States by building new LNG terminals and expanding storage facilities. The EU's efforts to wean itself from Russian energy have got it nowhere near energy independence now that the bloc has to purchase more energy products from the US and other countries at much higher costs.

The full-blown impact of a complete embargo on Russian energy has made some European countries, especially Germany, quail.

Michael Vassiliadis, chairman of the Mining, Chemical and Energy Industrial Union in Germany, warned that tens of thousands of jobs will be put at risk if the natural gas supplies are even partly cut off.

Massive damage

Leonhard Birnbaum, chief executive of the utility company E.ON in Germany, said that the German economy will suffer massive damage without Russian natural gas imports.

The EU's economic growth slowed to 0.4 percent in the last quarter of 2021, in contrast with the expansion of 2 percent recorded in the prior two quarters. The conflict in Ukraine will inevitably undermine the weak economic recovery in the bloc.

An analysis conducted by the Organization for Economic Cooperation and Development in March indicated that the Ukraine crisis will knock 1.4 percent off the euro-area economy in 2022.

Inflation in Europe is running wild, largely due to the sanctions against Russia. The inflation in the euro area hit a record high of 7.5 percent in March. High inflation is ubiquitous among the countries in the bloc.

The readings in the three Baltic countries and the Netherlands have even topped 10 percent. The European Central Bank recently revised up its projections of euro-area inflation to 5.1 percent in 2022. At the same time, the bank's economic growth forecast for the bloc has been lowered to 3.7 percent in 2022, 2.8 percent in 2023 and 1.6 percent in 2024.

Market observers worry that stagflation might be just around the corner given that inflation will remain high for an extended period.

Paolo Gentiloni, the commissioner for the economy in the European Commission, said that the 4 percent target for the euro area in 2022 looks unachievable for now. The prospects for growth will mainly depend on the duration of the Ukraine conflict, the possibility of increased energy supplies and the levels of consumer confidence.

Xinhua