Europe Is in Energy and Geopolitical Catastrophe

 

Friends of Europe from throughout the world often have conflicting opinions on what will happen to the historic continent. One such element is the importance of respect. Europe has shown that it is willing to pay a heavy price, protect Ukraine against Russian aggression, and show solidarity and determination. The second one raises concerns in our minds. In 2023, Europe will experience severe economic difficulties. As time passes, worries mount that changes in the global energy system, economic populism in the U.S., and rifts in global politics will hurt the long-term competitiveness of the European Union and non-members like Britain. The interests of both sides and the development of the continent are at risk.

The recent barrage of good news coming out of Europe should not be taken as gospel. Due to a run of mild days, gas storage is practically full, and prices are lower than they were over the summer. However, there are still dangers associated with the energy problem. Gas has historically cost nearly six times as much as it does now. Even though emergency power outages were being caused by missile attacks over the whole of Ukraine, Russia said on November 22 that it would shut down the last working pipeline to Europe. In 2023, it will be necessary to restock Europe's gas storage facilities, but there won't be any incoming Russian gas this time.

Putin's energy weapon will hurt people other than just Ukrainians. According to predictions, there will be 0.6% more deaths during a normal winter for every 10% rise in real energy expenses. As a consequence, the energy crisis in the area may result in the deaths of nearly 100,000 elderly Europeans this year. There's a chance Mr. Putin's energy weapon might result in more fatalities outside of Ukraine than it does within. Or, to put it another way, the conflict between the Ukrainian people and Russia is a conflict between Europe and the world.

The war is also making financial matters more complicated. Since energy inflation is starting to influence other sectors of the European economy, the European Central Bank is in a tough position. Inflation has to be contained, so interest rates need to go up. But if it gets out of hand, it might hurt countries like Italy, which has a heavy debt load and is already struggling economically.

The conflict has shed light on a flaw in Europe's corporate paradigm at a time when the energy crisis is only getting worse. Far too many German and European industrial firms depend excessively on Russian energy. Many companies have come to rely more on China, another dictatorship, as a source of customer demand. Many executive suites have been forced to do cost-benefit studies because of the prospect for strained relations with Russia, higher pricing, and a divide between the West and China.

This concern has intensified as a result of American economic nationalism, which might lure companies across the Atlantic with subsidies and protectionism. The Inflation Reduction Act, which President Joe Biden signed into law, allocates $400 billion to energy, industry, and transportation and includes "make-in-America" measures. The strategy is quite similar to China's industrial policy over the last few decades. Europe's steadfast adherence to WTO norms on free trade has made it appear foolish in light of the increasingly interventionist and protectionist stances taken by the United States and China.

Europe's population would suffer as a result of the continent's continued economic collapse if money stopped coming in. Europe has performed worse than any other economic region in contrast to its GDP growth prior to COVID. Only 14% of the top 100 companies in terms of market capitalization are based in Europe. In an "arms race" of preferential treatment, politicians will be compelled to flout the law and give companies subsidies. Germany's economy minister claims that the United States is a "sucker" for capital from investors.

Thus, the tensions between the US and EU are being exacerbated by the argument over subsidies. The United States provides far more financial and military aid to Ukraine than Europe does, and as it shifts its focus to Asia to counter China's threat, the United States is frustrated that the European Union does not contribute to its own defense. The majority of NATO countries are not spending the recommended 2% of GDP on defense. It's hard to think the EU was so naive about Russian aggression. There is a danger that a protracted conflict and economic troubles may progressively draw America and Europe apart again after the war brought them together after the rifts of the Trump years. Mr. Putin and Chinese President Xi Jinping would both be quite interested in that.

To avoid a fatal schism, the United States must stand back and see the bigger picture. Mr. Biden's protectionist views might prevent Europe from receiving energy when the United States is supplying the Ukrainian army with help and armies of tankers are crossing the Atlantic to provide energy to Europe. The main goal of Bidenomics is to prevent China from gaining industrial dominance. The United States has nothing to gain strategically by luring away European investment. It should strive for deeper integration of the Atlantic and Pacific energy markets and loosen limitations on energy subsidies for firms in Europe.

The looming energy crisis must be protected against while maintaining the economic security of Europe. As is done in Germany, effective programs that help individuals and businesses pay their energy bills should lower demand by raising rates just before the demand reaches an all-time high. Accelerating the switch to renewable energy sources and maintaining competitive energy markets are the best ways for Europe to lower its energy prices over the long term. It also necessitates a change in attitude toward security. The United States will need to raise its military spending as it turns its attention to Asia in order to handle the added responsibility.

Along with admiration and terror, frustration plays a crucial role in transatlantic connections. While Europeans are dissatisfied by American economic populism, Americans are frustrated by Europe's poor economy and defensive capabilities. Keeping Europe's diverse countries together is necessary, but it's also important that the greatest democratic alliance in history adjusts to the new situation and maintains stability.


Imran Hosen is a student of
Department of International
Relations, Dhaka University.