Prof. ST Hsieh
Director, US-China Energy Industry Forum
November 18, 2022
The war in Ukraine goes on, the snow starts to fall, these are not news. The following are pieces of bad news from Europe:
- Which European Countries Will Suffer The Most From The Energy Crisis? The answer is no one is spared. Worse news is the projection that “Clearly, even in the best scenario, Europe has a long, cold winter ahead – and then years of energy security troubles and delicate diplomacy to manage after that.”
- The UK government’s forecaster said that household incomes – once rising prices were taken into account – would dive by 7% in the next few years.
- Projections show that 26 million people in the United Kingdom alone are expected to sink into energy poverty over the winter months – that’s one in three households. It means that UK will experience continued political turmoil for years to come.
- Germany is a nation known for planning and stability. It is preparing for the wors case unique to Germany under black out conditions. But “aggressive discontent” is still expected.
Unfortunately, European leaders are not focused on the rood cause of this energy crisis: the war in Ukraine. No one seems to develop an exit strategy but promised unwavering support to Zelenskky for continuing his fight. How long will Europeans be willing to foot the war bill while they cannot afford home heating?
Europe Union and England are important economies in the world, the energy shortage induced regional economic recession will drag down the global economy and everyone will suffer. It would be a nightmare scenario and Europe would be the last to recover.
UK faces biggest fall in living standards on record
By Daniel Thomas Business reporter, BBC News
The UK faces its biggest drop in living standards on record as the surging cost of living eats into people’s wages.
It also expects the number of people who are unemployed to rise by more than 500,000.
Paul Johnson, director of the Institute for Fiscal Studies think tank, said: “Surging global energy prices have made the UK a poorer country. The result is an OBR (Office for Budget Responsibility) forecast that the next two years will see the biggest fall in household incomes in generations.”
Energy and food bills have shot up due to the war in Ukraine and pandemic, and are squeezing household budgets.
Inflation – the rate at which prices rise – is at a 41-year high, which the OBR says is dragging on the economy.
The OBR thinks that, taken together, this will tip the economy into a recession “lasting just over a year” as consumers spend less and businesses cut investment.
Germany Braces For “Aggressive Discontent” Ahead Of Winter Power Cuts
Thu, November 17, 2022 at 7:00 AM
While Europe has been keeping a generally optimistic facade ahead of the coming cold winter, signaling that it has more than enough gas in storage to make up for loss of Russian supply even in a “coldest-case” scenario, behind the scenes Europe’s largest economy is quietly preparing for a worst case scenario which include angry mobs and bank runs should blackouts prevent the population from accessing cash.
As Reuters reports citing four sources, German authorities have stepped up preparations for emergency cash deliveries in case of a blackout (or rather blackouts) to keep the economy running, as the nation braces for possible power cuts arising from the war in Ukraine. The plans include the Bundesbank hoarding extra billions to cope with a surge in demand, as well as “possible limits on withdrawals”, one of the people said.
Although German authorities have publicly played down the likelihood of a blackout and bank runs – for obvious reasons – the discussions show both how seriously they take the threat and how they struggle to prepare for potential crippling power outages caused by soaring energy costs or even sabotage. They also underscore the widening ramifications of the Ukraine war for Germany, which has for decades relied on affordable Russian energy and now faces double-digit inflation and a threat of disruption from fuel and energy shortages.
And here is the punchline: a parliamentary report a decade ago warned of “discontent” and “aggressive altercations” in case citizens were unable to get their hands on cash in a blackout. Translation: in case of cash withdrawal halts, German society may very well tear itself apart.
“We must preventively tackle the realistic scenario of a blackout,” Paulick said. “It would be totally naive to not talk about this at a time like now.”
How bad could it get? Well, more than 40% of Germans fear a blackout in the next six months, according to a survey last week published by Funke Mediengruppe.
But banks nevertheless are “in contact with the relevant ministries and authorities” to plan for such a scenario, especially since anything banks say is “improbable” tends to happen rather regularly. It said finance should be considered as critical infrastructure if energy is rationed.
Thu, November 17, 2022 at 8:00 AM
So far, Europe’s energy crisis has not been as bad as we had feared. As the days grow colder, the European energy supply will once again grow tight. Ironically, the situation may be worsened by the recent respite of energy tensions. The Economist analysis includes three possible trajectories for European energy markets during the winter, and none of them are good.
The first simulated scenario assumes that the tense political relations between Russia and Europe do not deteriorate even further, but that the situation remains more or less the same. This is to say that the Nord Stream pipeline that transports LNG from Russia to Germany remains closed and Europe follows through with its embargo on Russian crude oil and restrictions on insuring the vessels that carry it. This is a rather ideal scenario for Europe, in that it “triggers a crisis but not a catastrophe.” Supplies will be tight and prices will be painfully high, but Europe will make it through the winter without the wheels falling off. The second scenario assumes escalation and supposes that Russia completely shuts off the flow of LNG to Europe and causes the continent tens of billions of dollars in extra costs. The third, most extreme scenario supposes that Russia gives up entirely on diplomacy and holding on to fossil fuel revenues and destroys Europe’s gas import infrastructure leading to an “excruciating squeeze.” In this model, Europe’s annual import-gas bill nears $1 trillion and still faces extreme energy shortages through 2024.
Clearly, even in the best scenario, Europe has a long, cold winter ahead – and then years of energy security troubles and delicate diplomacy to manage after that. Projections show that 26 million people in the United Kingdom alone are expected to sink into energy poverty over the winter months – that’s one in three households. And the UK will probably be rather well off compared to many other European countries. “In the European Union, nearly seven percent of the population was not able to heat their home properly in 2021,” the World Economic Forum recently reported. Countries in southern and eastern Europe were among the most energy-impoverished last year, and this year is certain to be much, much grimmer for those nations.
According to data from last year, Bulgaria was the country with the highest rate of fuel poverty in the European Union, Bulgaria was followed by Lithuania and Cyprus. By contrast, the richest countries had less than 1% of energy poverty. “When data for 2022 comes out,” the World Bank report stated, “we can expect these figures to be worse.” And even under the best-case scenario, according to the Economist, the numbers for 2023 and 2024 will likely make 2022 look like a cakewalk.
What Happens If Italy Slides Toward Default?
David Powell and Jamie Rush
Wed, November 16, 2022 at 3:54 PM
(Bloomberg) — Italy’s debt has long been the Achilles’ heel of the euro area. In recent years, inflation has been too low, prompting extensive asset purchases by the European Central Bank. That helped keep borrowing costs down for the government in Rome. Now the monetary authority’s fight against inflation has put the nation’s debt onto an unsustainable trajectory.