Page 32 - bne IntelliNews monthly magazine December 2023

32 I Cover story bne December 2023
Eurozone: Industrial production
than twice that of Europe, and the gap continues to widen.
Russia has overtaken Germany to become the fifth biggest economy in the world in PPP terms, as Russia’s economy continues to grow while that of Germany sinks under the weight of the sanctions bounce-back.
Some EU member states are attempting to protect already damaged sectors while politically supporting the punishment of Russia. The eleven rounds of sanctions are riddled with exemptions and calve-outs to protect some of the more vulnerable industries, and everyone in Europe has been indirectly affected by the soaring energy prices and sky-high inflation.
As bne IntelliNews reported a year ago, the lights are starting to go out in Europe as just the soaring energy costs in Europe and lack of gas have already forced companies like Germany’s industrial powerhouse BASF to shutter or drastically reduce production at hundreds of factories in Europe that are unlikely ever to reopen. Germany’s heavy industry has already been reduced by 10%, according to some estimates. Energy prices have come down from their extreme levels in 2022, but they remain 2-3 times above the pre-war five-year averages and continue to punish European industry.
The cost of power has become a new tax that is also dragging down growth and investment. Households in Belgium
and Germany are already paying twice as much for electricity as Poland, a German government research body
said in November. Energy price rises have particularly squeezed small to mid-sized homes in the two countries in the first half of 2023, despite falling from astronomically high levels in 2022.
The German government is planning
to spend billions of euros on subsidies to shelter the population from the high prices for at least the next four years, but its budget is already being squeezed as
it hits Constitutional borrowing limits, known as the “debt brake”, in the middle of November. A recent German study found that two out three companies
Source: Oxford Economics
Russia industrial production y/y
Source: Rosstat
Ursula von der Leyen was a unifying force and looked like “the new Merkel” as she rallied the EU members to impose crushing sanctions on Russia.
But since then she has started to look more like an ideologue, hell bent on crushing Russia at all costs – including at the cost of the economic health of
the EU countries. Von der Leyen has come in for criticism for her total lack of condemnation of Azerbaijan’s so-called anti-terrorist operation and the ethnic cleansing of the Nagorno-Karabakh enclave on September 19 – clearly an
EU values issue. Her willingness to completely ignore Azerbaijan’s atrocious human rights record when cutting a
gas deal with Baku last year has also
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been roundly criticised. And her blatant pro-Israeli support led 800 members of her staff to publish a letter of complaint.
Now tensions are rising between the EC’s tough line on Russia and what the member states desire to protect their economies.
Sanctions have cost Europe a lot. Sanctions were first imposed in 2014, following the annexation of Crimea, and have hit Europe disproportionately, as the US has little trade or investment in Russia. In dollar terms, the European Union economy is now 65% of the United States economy, according to the FT, down from 91% in 2013. In addition, American GDP per capita is more