Within the EU despite the fact that, while it is true that dependency on Russian gas is a legacy for central and eastern Europe, for Germany or Italy it is the product of a deliberate choice. But to reject solidarity in the name of moral hazard would be far-fetch. After the euro crisis shock and the COVID-19 shock, the fallout from the economic confrontation with Russia is yet another, hardly predictable, asymmetric shock. Cost-sharing is call for, as it was for the COVID-19 crisis. Tight coordination is also call for, unlike what happen in response to the pandemic.
In the medium term, a wholesale rebuilding. Of the European energy system that will include the diversification of supply sources. Stronger interconnection and the definition of contingency plans. For responding to supply disruptions. In so doing, it will need to give significantly. More weight to its security objective than in the initial design of the electricity market. Because of a pervasive lack of trust among EU countries. Collective energy security was for a long time a topic. For speeches rather than for action.
The Eu Will Have To Design And Finance
Build an efficient and secure Tunisia phone number system. That makes the best of comparative advantage and treats energy security as a club good. This will require significant investment. For the immediate future, the upshot is that. Whereas the EU cannot realistically dispense with Russian gas altogether. It can immediately prepare to lower its reliance on it. Invest in diversification and commit to a stepwise reduction of its imports. As done in the past with Iran). This policy is bound to entail a significant short-term economic cost. But it is the condition for winning the game of chicken with Russia.
The refugee crisis is developing fast. In only ten days, nearly two million people have arrive in Poland and other central and eastern European countries. The number will rise further. The long-term cost of welcoming refugees is likely to be negligible, as they may either return to their home country or quickly integrate into the European labour market. But in the short term, they need food, accommodation, healthcare and education for children. Estimates of the corresponding cost, for example by the UNHCR, are relatively low.
The Time Has Come To Rethink
Experience shows, however, that costs can quickly mount: in Germany budgetary expenditures on refugees reached €9 billion in 2016, for about 750,000 applicants. If allowances are put at €10 billion per million refugees per year, the cost could easily reach €30 billion in 2022. This cost cannot be borne by the host countries, which are relatively less develop. It will need to be mutualised, mostly through the EU budget and additionally by international agencies such as the UNHCR, as well as charities.
The EU has already unlock immediate support to the Ukraine, with a first €500 million military assistance package (to which bilateral aid should be add). More is likely to be need in the coming weeks, even if the war ends soon. Much more importantly from an economic standpoint, Germany has committe to an increase in its defence budget, first through the setting up of a €100 billion debt-finance fund (close to 3% of GDP) and more lastingly through a tax-finance increase in defence spending from 1.4% to 2% of GDP.