Why only coal? Europe can afford to ban Russian gas too – POLITICO

Luis Garicano is Vice-President and Business Spokesperson for Renew Europe and Head of the Spanish Ciudadanos Delegation to the European Parliament.

Since Russian President Vladimir Putin began invading a Western democracy, Europe has paid Russia around €20 billion for energy imports – enabling atrocities such as those uncovered in Bucha this weekend.

These blatant war crimes are an existential threat to Europe’s values. And yet the latest sanctions proposed by European Commission President Ursula von der Leyen still only relate to coal – even though Russian gas and oil exports are now worth 25 times since the war began.

Opponents of an energy embargo urge us to “put aside the moralizing” and consider the potential economic and social implications of such a move. But contrary to what you claim, an embargo is not only in line with our values, it also serves our interests.

The embargo skeptics are led by Chancellor Olaf Scholz, who claims an immediate ban would be both ineffective and too costly. But the research is unequivocal and contradicts the Chancellor’s claims: a ban would severely damage the Russian war economy and the damage to Europe would be manageable.

In fact, a ban on gas exports could spell doom for Putin. So far, our payments have helped Russia stabilize the ruble. After initially collapsing 70 percent, it is now recovered its pre-war value. But a ban would prevent Russia’s central bank from raising the hard currency it needs to avoid a financial crisis. An additional benefit would be closing the current loopholes in the SWIFT ban, which has big exemptions to allow energy exports.

An embargo would also make it impossible for Putin to pay for the war. To quote the late Senator John McCain, Russia is “a gas station posing as a country,” and Europe is accounts for 49 percent of its oil and 74 percent of its gas exports. A model developed by the Institute of International Finance suggests that losses under a full embargo would be equivalent to 40 percent of Russia’s pre-war GDP. The state would also suffer, since 40 percent of its budget is financed directly through energy exports.

And the costs for Europe would be bearable.

The Advisory Council of German Business evaluation existing research on the effects of an embargo on Germany forecast GDP losses of between 0.2 and 2.2 percent. Most authoritative study, conducted by a group of top German economists led by Rudi Bachmann, put the impact at 0.5 to 3.5 percent. That is a price that Europe can pay. The euro zone was set to grow by 3.7 percent in 2022 – the embargo would mean a lost year of growth.

It is a mystery why Federal Economics Minister Robert Habeck still speaks of an embargo leading to mass poverty in Germany, although even the simplest calculations are enough to prove that this is not true. Gas – 40 percent of it Russian – accounts for 1.2 percent of German GDP.

Brueghel’s Georg Zachmann estimates that half of the shortage can be replaced by LNG and other imports, with the remaining shortage accounting for just over 0.2 percent of GDP. The multiplier effect of the gas input needed for this tiny loss to create mass poverty is beyond implausible.

In addition, Europe has specific tools to cushion the impact of an embargo on unemployment and income. A deficit-financed support mechanism that would prevent any second-order effects after a 3 percent fall in GDP (in a pessimistic case) would increase the debt ratio by only 3 percentage points.

Above all, we must also consider the cost of the alternative. Russian forces on Europe’s borders are creating insecurity and reducing investment. The longer the war goes on, the greater the risk of spillovers – not to mention the cost of the war in Ukraine itself. And if we remain addicted to Russian gas, we are at Putin’s mercy. He can always just choose to cut supplies himself when we are unprepared and the damage would be greatest.

But if it’s all so obvious, why is Mr. Habeck talking about mass poverty?

The truth is that a significant part of German industry has benefited from extremely cheap, subsidized fossil fuel energy from Russia. As Michael Heinz, CEO of chemicals giant BASF said on March 31, “Cheap Russian energy is the basis for our industry’s competitiveness.”

Industrial consumers pay only 10 percent of the household gas price, and Germany has specialized in energy-intensive production. Just as banks have begged for bailouts before them, industry lobbyists are trying to persuade governments that disaster is imminent; They do their job, and do it well. But that doesn’t mean we have to follow their advice.

Instead, Europe can learn to live without Russian fossil fuels.

Different countries have different strengths: Spain has LNG terminals; an emergency line must be built to bring gas to Germany and the rest of Central Europe. If necessary, Europe can even temporarily re-use its considerable fossil fuel capacity. The Netherlands has one of the largest natural gas fields in the world. Now closed, it can easily be reopened.

We must apply an embargo to defend our values ​​while serving our own interests. And we must do it together.

https://www.politico.eu/article/why-only-coal-europe-can-afford-to-ban-russian-gas-too/?utm_source=RSS_Feed&utm_medium=RSS&utm_campaign=RSS_Syndication Why only coal? Europe can afford to ban Russian gas too – POLITICO

Fry Electronics Team

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