Can Europe, Warmed by American Gas, Reignite Its Cooling Economy?
Many observers wondered how European governments could satisfy their citizens who had not seen war since the end of the Second World War. There were even fears that European democracies might disintegrate during Russia's war against Ukraine. The triple pressure of economic downturn and inflation, energy crisis and millions of Ukrainian refugees was calculated to be fertile ground for populist politicians in particular.
It is the middle of winter. Europe has fallen silent. Towards the end of the summer, we had some questions. Some of them were: How will Europe solve its energy and heating problems in the coming winter without Russian natural gas? How will life go on in European cities? How will Europe's cohesion be preserved in the face of shrinking European economies, high inflation and declining household purchasing power?
Many observers wondered how European governments could satisfy their citizens who had not seen war since the end of the Second World War. There were even fears that European democracies might disintegrate during Russia's war against Ukraine. The triple pressure of economic downturn and inflation, energy crisis and millions of Ukrainian refugees was calculated to be fertile ground for populist politicians in particular. The rise of populism would mean that European governments would be unable to maintain their unconditional support for Ukraine. Support would necessarily weaken. In reality, this scenario did not materialize. Europe has proved more resilient than expected. So far, they are playing the 'game' well.
In 2021, European Union countries procured 40% of the natural gas they used for heating and industrial energy needs from Russia. In 2020, this ratio was 43%. Natural gas from non-EU Norway accounted for 21%. There was a prediction that the restrictions on natural gas would leave Europe in a difficult situation this winter. This was because the EU had to turn to other countries to end its natural gas imports from Russia under the US-led sanctions. In fact, before the war, the EU was aiming to reduce its dependence on Russia by two-thirds by 2030. But after the war, this target had to be pushed back to 2023. In doing so, priority was given to finding different countries for natural gas supply. Efforts to increase renewable energy sources were accelerated.
After all, Europe knew before the war what would happen in the event of a war. Minds were prepared. Perhaps that is why they initially looked for alternative gas supplies, largely unencumbered by Putin's 'ruble' sales card. Thus, they managed to largely fill their gas tanks for the winter. While the Russian gas utilization rate was 40% at the beginning of 2022, it was reduced to 17% before winter came knocking. In other words, dependence on Russian gas has been significantly reduced.
Russian gas was primarily replaced by liquefied natural gas (LNG) imported from the US. Norway's exports to the rest of Europe also increased, reaching 26 percent. The Netherlands once planned to stop production at Groningen, once the world's largest gas reserve, in the fall of 2022. However, due to the energy crisis, this plan has now been postponed until October 2023. This means that part of Europe's gas needs will be supplied by the Netherlands. For LNG supplies, import negotiations have been successfully concluded with Qatar, Australia, Algeria and Nigeria.
Italy, for example, signed gas supply agreements with Algeria, Qatar and Azerbaijan. This has reduced its dependence on Russian gas to 21%. Spain and Portugal have already overcome their dependence on Russian gas thanks to their LNG terminals. France has commissioned three LNG terminals. It bought most of the rest of its gas from Norway via pipeline. Germany built and commissioned a new LNG terminal. Norway and the Netherlands mainly meet its gas needs.
EU heads of government have set an upper price for natural gas across the EU, and an upper limit has been agreed upon. In an international organization where each country's dependency status is different from each other, reaching a common decision was a truly applaudable move. This allowed the implementation of the price cap to ensure that the gas bills of individuals and households in all EU member states would be lower than expected.
Following the resolution of the gas issue, EU countries have also started to focus on support for Ukraine. The EU agreed to an €18 billion macro-financial aid package to help Ukraine sustain its 2023 budget. It also added two billion euros to the European Peace Fund, a fund created outside the EU budget that reimburses member states for arms donations to Ukraine. In total, financial, humanitarian and military assistance from all EU member states and institutions totaled €55 billion.
Contrary to expectations, according to polls, (on average) 50% of the EU population supports arms deliveries to Ukraine. The majority of EU citizens support sanctions against Russia and consider them necessary. However, the majority of Greeks, Hungarians and Italians argue the opposite. The most striking point here is Hungary's reaction. Hungary blocked EU support to Ukraine, using the excuse that the European Commission had 'sanctioned' it and frozen its financial funds. Then, when some of the funds were released, the blockade was lifted in return.
Since the crisis period prior to the Russia-Ukraine war, EU countries and their leaders have been focused on how to work out a 'culture of compromise' in order to solve the problems that have arisen one after another in Europe, such as the supply of natural gas, assistance to Ukrainian irregular migrants, and support to Ukraine.
Of course, the EU is an international organization that prides itself on being a compromise machine by nature. It has taken a long and tedious process for the EU to achieve a culture of compromise. It has also developed a culture of tolerance of differences in decision-making. This is why many EU leaders like to emphasize the principle that 'results matter'. This moderate approach is the key to the EU actually working and to a culture of compromise. Veto-wielding leadership is not acceptable. Approaches that burn bridges are not approved in this culture. So, sooner or later, EU leaders have mastered the skill of focusing on finding a way to reach a creative compromise. This culture of compromise has been seen to persist in solving the problems created by the war.
Indeed, before the war, EU solidarity, weakened by the COVID-19 pandemic since 2019, was put to an important test. For the first time in its history, the EU was able to agree on a common borrowing mechanism to mitigate the economic damage of the pandemic. The lesson was that solidarity was more successful than acting alone.
The debates and eventual compromises reached during the pandemic again guided the EU in overcoming the initial disputes between member states over energy subsidies during the war.
With the heating and energy problem largely solved, the biggest challenge for the EU is the recession in most member states. Inflation across the EU is expected to hover around 7% in 2023. A contraction in gross domestic product (GDP) is almost certain.
Now the EU machine needs to put in place measures to overcome the recession and get the European economy back on track. Do you think a warming Europe can successfully take the necessary steps to feed the lifeblood of its cooling economy?
References:
Euronews, “Yüksek enflasyonun pençesindeki AB'de resesyon beklentisi”, 13 Aralık 2022, https://tr.euronews.com/2022/11/11/yuksek-enflasyonun-pencesindeki-abde-resesyon-beklentisi
Liana Fix, “Why European Democracies Are More Resilient Than Expected”, Council on Foreign Relations, 5 Ocak 2023, https://www.cfr.org/article/why-european-democracies-are-more-resilient-expected
