I think the underlying plan was always to weaken Russia at expense of Europe especially Ukraine
European Economics Thread
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I think the underlying plan was always to weaken Russia at expense of Europe especially Ukraine
Europe will go into recession as Russian energy restrictions and other factors kick in. But this recession will be temporary, prob for 1-2 years. After that Europe will never be completely dependent on Russian energy again. Russia will emerge significantly weaker. The decoupling between. Europe and Russia will be complete; exactly as planned by the US.
The issue here isn't energy actually. It's actually the financial system and debt issue. There is currently $1 trillion margin call on European power producers. You can make your own guesses on what will happen when that gets liquidated and banks are stuck with all these future positions they can't get out of. Remember that when swiss bank abandoned the fixed exchange rate with eur back 7 years ago, a pretty large forex exchange went under due to being stuck with the positions.
We are likely looking at a banking sector and sovereign debts crisis right now. It feels like late 2007 and early 2008 for me.
Euro industry will be permanently affected by the absence of cheap Russian energy, and will not be able to rebuild to it's prewar level. Europe may also become politically unstable like UK post brexit.
European energy companies will not face insolvency as long as their governments provide the necessary loans and aid, which is already underway. It’s a short term cash crunch. But they government/banks will issue loans and know that these will be repaid.
How many government have $1 trillion? You clearly don't understand how fragile the financial and banking system is. Before long, we are going to see sovereign debt issues again like back in 2010.
How fragile is their financial system?
I think we have another 2008 on our hand. Going to hit us, Europe and china. But it will hit Europe the hardest.
Global recession is likely in 2023. Yes it will affect all three countries of course due to interdependence. But not sure how long it will last. It could be temporary for 1-2 years. But in the long term the one hit the hardest is not Europe, but Russia, which faces prolonged and deep economic damage.
Well, if we look at end of 2007, Chinese economy was only slightly larger than that of Germany. Now, it is larger than all of EU. And even if we use America's comparison point, I believe it had smaller economy than all of EU back then, but now it is clearly larger. That's the effect of Eurozone sovereign debt crisis. Now, EU is about to be hit by another debt crisis + a drastically de-industrialization. So, you have to wonder if EU will be like Japan of past 30 years or something more optimistic. Japan basically hasn't grown in 30 years (in nominal GDP) and basically lost all of its industrial powers to China and South Korea (only auto industry left). We've seen this energy crisis already hit the manufacturing sector in EU really hard. Structurally, EU will never have the cheap energy back. Cheap energy was what allowed Central European power to lead European manufacturing. EU just had its first trade deficit in like a decade. LNG from America is just a much more expensive source of energy than pipeline gas from Russia. It's nuclear industry is nowhere to be found. So while Europe likely will not have energy crisis in 2 or 3 years, its industrial base is likely going to get swallowed. Believe it or not, it will depend even more on China for supply chain and manufacturing.
The next couple of years will likely result in more manufacturing shift toward countries with lower energy costs. That will be Asia and America. And once Europe lose a chunk of its manufacturing, it's unlikely to get that back with the higher energy costs that it will have to be paying. So this next banking crisis is likely to affect EU a lot longer than Asia and America. I wouldn't be surprised if EU's economy in USD will be the same in 2030 as it was in 2021.
Which brings us to Russia. I think that really depends on how successful Russia is at redirecting its exports to Asian countries. Strategically, it's actually a smart plan to embrace the rise of Asia. Unfortunately for them, they did it at a time when Asian countries can't export them advanced machineries. Therefore, we have a period where Russia is losing talented engineers and seeing degradation of its infrastructure. There is also the more permanent issue for Russia of population decline. Longer term, I'm not sure how much Russia can rely on oil and natural gas, since countries around the world are moving away from hydrocarbon energy sources. Fortunately for Russia, it has so much of the natural resources the rest of the world needs for this green economy. So, I think the long term outlook of Russia is very dependent on quickly it can finish the conflict with Ukraine and start trading with rest of the world.
I think a long recession in Europe that weakens its resolve to stick with US sanctions is probably the best way to achieve that. Russia does not need Europe, but it needs to be able to buy everything it needs from China.