The Eurozone economy one year after Russia invaded Ukraine

The Eurozone economy one year after Russia invaded Ukraine

A year ago, Russia launched an unjustified invasion of Ukraine. The war caused a severe shock to the world economy, especially the energy and food markets, reducing supply and raising prices to unprecedented levels. The war greatly exacerbated inflationary pressures. Inflation rates rose not only in Europe but around the world. The Eurozone economy is highly open compared to other economic regions, making it vulnerable to disruptions in global markets and supply chains. European countries heavily depend on Russian energy imports, accounting for more than half of eurozone energy consumption in 2020. Before the war, Russia was the main supplier of energy resources (oil, gas, coal) to Europe. Ukraine also played a major role in importing wheat, food, and fertilizers to the Eurozone. Given the Eurozone's high dependence on energy imports, the surge in the price of imported energy led to a sharp rise in costs, resulting in higher prices for everything from food to cars.

As a result, in December 2021, the ECB began normalizing policy by raising interest rates and reducing its balance sheet. European governments have also done a lot to reduce the impact of the cost-of-living crisis. In order not to shock domestic consumers too much, EU countries had to compensate for high prices from state budgets. According to Belgian think tank Bruegel, subsidizing gas, electricity, and gasoline prices has cost the EU 600 billion euros since September 2021.

European countries urgently began looking for cheap Russian gas and oil replacement. Three ways to reduce dependence on Russia were considered: diversification of supplies, energy efficiency, and accelerated development of renewable energy. In terms of diversification, liquefied natural gas (LNG) purchases from suppliers such as the United States, Qatar, Norway, and Algeria were increased.

There were also sanctions against Russia and Russian energy resources. In 2022, natural gas consumption in the EU decreased by almost 20%, which helped the EU cope with reduced gas imports from Russia, partly because of EU sanctions. It has also increased investment in green energy to reduce the EU's energy dependence. Efforts to save energy and diversify energy supplies have sharply dropped natural gas prices in recent months. As a result, inflationary pressures have begun to fall, and the economy has shown some unexpected resilience. Consistent with the overall economy's remarkable resilience to the war's effects, unemployment has fallen to its lowest level since the creation of the Economic and Monetary Union. The EU will likely avoid a deep recession, even as sky-high energy prices, declining confidence, and rising interest rates weigh on the economy. The International Monetary Fund raised its growth forecast for the bloc, citing unexpected resilience.

Despite these positive signals, it is important to remember that the war still poses significant economic risks and could cause prices to rise again, especially for energy and food. During the year, Russia cut its blue fuel supplies to cause an economic crisis for its European opponents. Still, there was no "Holodomor" or "freezing of Europe" that the Russian media so propagated about. Moscow sought to destabilize the European Union's energy system and make its support for Ukraine disadvantageous. But warm weather helped Europeans get through this winter successfully. However, there is still a lot of work ahead since the EU has provided energy independence from Russia by only ⅔. But strategists believe that Europe will be able almost completely to replace Russian energy resources within the next two years.

The entire civilized world has united against Russia. Russia now has the largest number of sanctions in the world - 14,081 (2,754 before the war). Iran, for example, has the second-highest number of sanctions at 4,191. Russia's economy withstands the onslaught only due to accumulated reserves and the sale of energy resources to Asian countries such as India and China. But Moscow's revenues have fallen substantially and continue to fall. It is becoming increasingly difficult to sustain the war, while the United States, the EU, and NATO are only increasing military and financial support to Ukraine. And the European economy is now strong again and returning to growth. The outcome of the war is already predetermined. Russia has only two options - to accept defeat and withdraw its troops from Ukraine or to go to the end, using the last argument - nuclear weapons, which could lead to the beginning of the Third World War. There is also a third option - by threatening with nuclear weapons, Russia can force Ukraine to give up part of its territories (Donetsk and Luhansk regions) and recognize Crimea as Russian, according to the Korean scenario of the 38th parallel. Time will tell how it will end. But everyone already understands who the Russians are and that "Rashism" is worse than "Nazism."

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