Sept. 26, 2022 – By Thomas Faze
All eyes may be on the Italian election results this morning, but Europe’s got much bigger problems on its hands than the prospect of a Right-wing government. Winter is coming, and the catastrophic consequences of Europe’s self-imposed energy crisis are already being felt across the continent.
As politicians continue to devise unrealistic plans for energy rationing, the reality is that soaring energy prices and falling demand have already caused dozens of plants across a diverse range of energy-intensive industries — glass, steel, aluminium, zinc, fertilisers, chemicals — to cut back production or shut down, causing thousands of workers to be laid off. Even the pro-war New York Times was recently forced to acknowledge the “crippling” impact that Brussels’s sanctions are having on industry and the working class in Europe. “High energy prices are lashing European industry, forcing factories to cut production quickly and put tens of thousands of employees on furlough,” it reported.
Zinc, aluminium and silicon production cuts (amounting to a staggering 50% of output) have already left consumers in the Europe’s steel, auto and construction industries facing severe shortages, which are being offset by shipments from China and elsewhere. Meanwhile, steel plants in Spain, Italy, France, Germany and other countries — more than two dozen in total — are beginning to slow down or entirely stop their output.
The fertiliser industry, which is heavily dependent on gas as a key feedstock as well as a source of power, is in even bigger trouble. More than two-thirds of production — around 30 plants — has already been halted. The German chemicals powerhouse BASF has temporarily shut down 80 plants worldwide and is slowing production at another 100 as it plans further output cuts depending on what happens to gas prices. To make things worse, EU sanctions have also limited imports of Russian fertilisers.
Dwindling supplies of fertilisers are also having a dramatic knock-on effect on European farmers, which are being forced to scale back their use of the key nutrient. This means higher prices for less output, and the consequences are bound to be felt well beyond Europe’s borders, potentially triggering a global food shortage.
But the shortage of fertiliser isn’t the only problem facing European farmers. Across northern and western Europe, vegetable producers are contemplating halting their activities because of the crippling energy costs — in some cases ten times higher than those of 2021 — required to heat greenhouse through the winter and keep harvests refrigerated, on top of rising transport and packaging costs. Greenhouse industry group Glastuinbouw Nederland says up to 40% of its 3,000 members are in financial distress. This further threatens food supplies — and will certainly lead to even higher food prices which, coupled with soaring energy bills, is likely to drive millions of European into poverty. In other words, the European energy and cost-of-living crisis is on course to descend into an outright humanitarian crisis.
In the UK, 45 million people are forecast to face fuel poverty by January 2023; as a result, “millions of children’s development will be blighted” with lung damage, toxic stress and deepening educational inequalities, as children struggle to keep up with school work in freezing homes. Lives will be lost, experts warn. Meanwhile, in Germany’s Rheingau-Taunus district, the authorities have carried out a simulation of what such a blackout would mean for them, and the results are shocking: more than 400 people would die in the first 96 hours. And this in a district of just 190,000 inhabitants.
Now, these numbers may well be overestimates, but the local government can’t afford to ignore them. Indeed, Gerd Landsberg, general manager of the German Association of Towns and Municipalities, has urged residents to stockpile water and food for 14 days. Landsberg says that Germany is “in no way” prepared for such a scenario.
What’s important to understand is that this is not some temporary crisis where all we need to do is grit our teeth through the winter, after which things will return to normal. The reality, as the chief executive of Shell recently made clear, is that if European governments insist on decoupling Europe from Russian supplies, the continent will face gas shortages “likely to last several winters”. It’s a bitter truth, but there’s simply no short-term alternative to Russia’s gas. Indeed, the European Commission forecasts gas and electricity prices to “remain high and volatile until at least 2023”.
To put it simply, if it stays on its current course, Europe is looking at years of economic contraction, inflation, deindustrialisation, declining living standards, mass impoverishment, and shortages — and this without taking into account the terrifying prospect of an outright military confrontation with Russia. How can anyone think Europe can survive this without plunging into anarchy?
The folly of the situation becomes even more apparent when we consider that, in its attempt to reduce its dependence on Russian gas, the EU is increasing its reliance on supplies from countries like China and India — which, it would appear, are simply reselling to Europe gas that comes from… Russia (at a higher price, of course). If people’s lives weren’t on the line, this whole thing would seem like a sick joke.
Europe has lost the energy war
It’s truly a sign of the feebleness of Europe’s politicians that despite the fast-approaching cliff, no one can bring themselves to state the obvious: that the sanctions need to end. There’s simply no moral justification for destroying the livelihoods of millions of Europeans simply to school Putin, even if the sanctions were helping to achieve that aim, which they clearly aren’t.
And so, rather depressingly, the only voice of reason appears to be that of Hungary’s prime minister, Victor Orbán. For weeks he and other members of his government have been warning about the economic calamity facing Europe. “The attempts to weaken Russia have not succeeded,” he said recently. “By contrast, it is Europe that could be brought to its knees by brutal inflation and energy shortages resulting from sanctions”. This is a statement of fact, not an opinion. But nobody seems to want to listen.
In response, the technocrats in Brussels are proving to be just as senseless as national leaders. Not only is the EU’s gung-ho approach to Russia one of the main causes of the present crisis, but its leadership continues to pour petrol on the fire. Just this month, Josep Borrell, the High Representative of the European Union for Foreign Affairs and Security Policy, said that “the strategy against Russia is working and must continue” — and promised new sanctions.
Even worse, the EU isn’t even doing anything to help cushion the effects of the crisis it helped create. After dropping the ridiculous proposal of capping only the price of Russian gas — which would have led to the latter’s immediate cut-off — Brussels is now mulling a cap on all gas imports, which even the German Minister of State for Europe has warned could lead to severe shortages.
The proposal also fails to take into account a basic fact: it’s not energy exporters that are ramping up the price of gas; the latter today is linked to the price at which gas is traded on virtual trading markets such as the TTF in Amsterdam, where speculators have been rallying up prices for months, making huge profits. Moreover, in today’s liberalised market, which is based on so-called marginal-cost pricing, the final price of power is set by the most expensive fuel needed to meet all demands — in this case gas. This means that as gas prices soar, so does electricity, even if cheaper, clean sources contribute to the total mix.
So, if the EU were serious about tackling about energy prices, it would decouple the price of gas from speculative trading markets and overhaul the marginal-cost pricing system. But that would go against the European technocrats’ fundamental ideology: the idea that prices should be set by markets. Indeed, the EU was among the most ardent supporters, against Putin’s advice, of the shift from long-term, fixed price gas deals to a system where the price is set by virtual trading markets.
Civil disobedience is coming
Given the unlikelihood of radical reform, what will Brussels do next? In all likelihood, it will settle for half-baked solutions — such as a cap on the excess revenues made by non-gas power plants and a windfall tax on surplus profits — as well as for what it does best: austerity. Meanwhile, the ECB, instead of announcing a new round of bond purchases to provide governments with the cash they need to cushion citizens and companies from soaring gas and energy prices, has started to taper its quantitative easing programmes and hiked interest rates, causing the spread between 10-year government bonds issued by Italy and Germany to widen to their highest levels since the pandemic began. This could easily precipitate a new debt crisis, which is the last thing Europe needs.
Without central bank support, governments in the EU have essentially been left to fend for themselves. Once again we are reminded of what it means for euro countries to have given up the power to issue their own money; it’s no coincidence that the UK alone has allocated more than 50% of what has been set aside by the EU as a whole.
This is already leading to beggar-thy-neighbour policies: those countries, such as Germany, that can rely on financial markets to raise the cash they need to help citizens and businesses, and nationalise or bail out ailing energy utilities, will inevitably outcompete weaker countries that are already facing stress on bond markets, such as Italy. In fact, this is already starting to happen, as more and more countries engage in what can only be described as energy protectionism.
In theory, Europe’s gas security is governed by a regulation adopted in 2017, which makes solidarity among European countries mandatory. But EU countries don’t always observe those rules when confronted with a supply crisis. So, for example, the Italian newspaper la Repubblica recently reported that Italy had received written notification from France’s state-controlled utility EDF regarding a potential two-year halt on power exports as part of France’s energy-saving plans. A spokesperson for Italy’s Ministry of Ecological Transition later confirmed the newspaper report, although it was denied by EDF. Similarly, Croatia and Hungary have both announced that plans to implement measures to limit exports of natural gas to neighbouring countries. While Norway, which has supplanted Russia as the EU’s largest source of gas, making gigantic profits on the back of higher gas prices, has thus refused to back a price cap on its gas exports.
Yet while moaning about such “lack of solidarity” between European states is easy, it is also naïve. This, after all, is simply how capitalism works. For all the talk of “global capitalism”, individual nations — or better, their respective capitalist elites — are still engaged in competition with each other. While the ruling classes of individual countries are more than happy to collaborate to pursue the interests of capital-in-general at the expense of workers — just look at the European Union — their competing interests inevitably re-emerge in times of crisis.
The EU, in fact, far from encouraging solidarity among countries, actually makes inter-capitalist competition even more fierce, by depriving countries of the basic economic tools that are required to deal with external shocks. It doesn’t matter if the continent is experiencing a financial crash, a global pandemic or an energy shortage. In Europe, beggar-thy-neighbour policies aren’t an exception to the rule — they are the rule.