Fiscal Policy Are Strongly Interdependent

It will prompt further steps into a messy world in which governments interfere with markets for security reasons and in which monetary. Coordination, rather than the clarity of the policy framework, will be the new motto. The COVID-19 crisis has already resulted in a move in this direction. Hopes for normalisation are most likely to be frustrated. Fiscal support has and will have a significant impact on public finances. Measures introduced since summer 2021 already entail a non-trivial budgetary cost (0.5% to 1% of GDP in France, where the president is admittedly facing re-election).

New measures in response to elevated energy prices could increase this cost further, perhaps to 1% of GDP. Continued reliance on energy imports from Russia is in contradiction with the strategy of cutting off the aggressor from international finance and payments. At prices somewhat below current levels ($100/bl for the Brent and €100/MWh for the gas), oil and gas quantities exported by Russia to the EU in 2019 would be valued about €200bn each, in total roughly twice as much as foreign exchange reserves held in G7 countries at end-2021. It is imperative to curtail this income stream.

Reducing Energy Reliance On Russia

What would be the point of Sri Lanka phone number . The Bank of Russia from accessing its reserves if Russia continues to benefit. FRrom much-inflated export income? Energy carve-outs actually protect. The largest part of the Russian banking system from being excluded from SWIFT. All in all, record export income flows are currently entering. Russia despite the discount on the price of oil it sells abroad. Russia is the EU’s main supplier of oil (27% of imports, 2019 data). Coal (47%) and gas (41%). Oil and coal. Do not require special infrastructure to be deliver to the market.

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They can be put on a boat and shipped to wherever there is a buyer. Gas, however, is critical because trade depends on infrastructure. Meaning that neither the supplier nor the buyer can diversify seamlessly. A global ban on Russian oil imports is being discus. The question is whether an effective curtailment. Of Russian sales would result in the price ratcheting up on the global market. Which would add to the global supply shock and possibly frustrate. The sanctioning effect of the measures taken. A ban can only succeed if cuts in Russian shipments are offset. By supplementary exports from other producers.

Even If It Cuts Overall Gas Consumption

For gas, Europe and Russia are set to play a game of chicken over their mutual dependency. Russia certainly has leverage. If it were to discontinue exports, the EU would lose 40% of its natural gas supplies. The impact on some EU countries would be catastrophic. This is why Brussels has so far left gas outside the scope of sanctions. But the EU has two assets: Russian gas imports represent only 8.4% of its total demand for primary energy, and it has more capacity to diversify its sourcing than Russia has to diversify its exports markets.

Anyhow the EU must prepare to manage without Russian gas, because not planning for such an occurrence would expose it to Russian blackmail. Shipments from Russia to the EU amounte to 1800 terawatt hours (TWh) in 2019 (2020 and 2021 were abnormal years), out of a total of 3800 TWh of natural gas imports. But the EU also needs to replenish its reserves, which are running very low. Even if it cuts overall gas consumption by one-fifth and limits the replenishment of reserves to 500 TWh, it will need to import some 3400 TWh in 2022.

 

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