Costs of Ukraine war pose tests for European leaders – and things may get worse

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The Guardian

Desperate efforts in Italy to prevent the fall of Mario Draghi’s government are only the latest political firestorm in Europe tied to Vladimir Putin’s tests of the west’s powers of endurance. Draghi’s foreign minister, Luigi di Maio, suggested it would be Putin who celebrated the fall of another western government if Draghi does not survive a confidence vote in parliament on Wednesday.

“A boat without a rudder goes adrift,” said Ferruccio Resta, the president of the Conference of Italian University Rectors – a metaphor that could apply, to Putin’s satisfaction, to much of Europe as governments come under growing pressure over the perceived domestic cost of the war in Ukraine.

The narrative of a brewing popular revolt against western sanctions on Russia certainly fits well with Putin’s central narrative that time and economics are on his side since the sanctions are damaging European consumers more than Russia’s.

He feels soaring fuel prices are the most lethal of macroeconomic shocks for politicians as they drive inflation while slowing economic growth.

As yet it is premature to take a definitive view about the scale of the potential electoral backlash in Europe, and Josep Borrell, the EU foreign affairs spokesperson, for instance, angrily complained that rising prices were being attributed to EU sanctions without any evidence. Borrell said of the critics of EU sanctions: “Don’t they have eyes? Do they not look at the graphs? Do they not consider figures or facts?”

In France, Emmanuel Macron has been weakened if not muted by the loss of his parliamentary majority to parties more naturally sympathetic to Putin. In Spain, the Socialists, facing elections next year, have just lost their power base in Andalusia, the most populous region. The centre-right People’s party achieved a new record high of 36.3 % in the latest GAD3 poll, its best result since April 2017. If repeated in an election it would be its best result since 2011.

In Estonia, the fiercely anti-Putin prime minister, Kaja Kallas, survived last week after her previous coalition government fell in a dispute linked to the country’s inflation rate of 19%, the highest in the 19-nation eurozone. Electricity prices in Estonia are at a record high, averaging €300 a megawatt-hour last week.

Kallas skilfully reconstructed her government but at some cost to the Estonian budget and her credibility. If the economy is not better by the time of legislative elections next March, she could be in trouble. In Warsaw, the PiS frets about electoral defeat next autumn, even if the opposition would remain supportive of Ukraine. In Bulgaria, a pro-western government has fallen. And, of course, Volodymyr Zelenskiy has just been let down spectacularly by the self-inflicted demise of Boris Johnson in Britain.

The politician who has fared best at the ballot box most recently is probably Viktor Orbán, Putin’s greatest ally in Europe. Orbán is glorying in it. He said at first he believed European politicians had only “shot themselves in the foot”, but now it is clear that it was a shot to the lungs of the European economy, which is struggling for air everywhere.

It may be about to get worse, much worse. On Wednesday, apart from the issue for Italy of Draghi’s survival, the EU will have to decide whether it can agree on a solidarity mechanism if Russian gas supplies run out this winter.

Putin’s intentions on that front will become clear on Thursday when the Russian monopoly gas supplier Gazprom will decide whether to resume supplies to Europe after the annual scheduled maintenance break on the Nord Stream 1 pipeline. The signs are ominous. Gazprom has already said in a private letter to gas customers that it cannot guarantee gas supplies and declared force majeure.

Reliance on Russian gas varies greatly throughout Europe

German politicians are not disguising from the electorate the scale of the threat, part of an effort to ensure they understand that Putin is culpable. The German economics minister, Robert Habeck, described Putin’s tactics as an attack on Germany capable of causing a catastrophe.

Klaus Müller, Germany’s energy regulator, said gas prices for consumers may triple by 2023. He said it was “absolutely realistic” that customers who currently pay €1,500 a year for gas would be asked to pay €4,500 and more in the future. Thomas Matussek the former German ambassador to London, told the BBC on Monday: “If push comes to shove we are probably entering the biggest economic crisis that Germany has experienced since the end of the second world war.”

Despite the current heatwave, Matussek was right to say winter is already coming, and the critical issue will be the level of European gas reserves going into that winter. Putin’s optimum leverage will come from keeping Germany on the shortest of leashes, still dependent on Russia for a third of its gas going into winter. Unlike when previous routine maintenance was being carried out, Gazprom did not ramp up gas supplies through Ukraine’s pipelines this time, so Russian gas exports to Europe are currently about a quarter of normal. It could then be a titanic struggle between Germany and Russia.

By contrast, some countries are better protected. Italy, for instance, has filled far more than 65% of its gas storage capacity and is on track to achieve its target of reaching storage levels of 90% in October, Roberto Cingolani, the ecological transition minister, said at the weekend.

Russia’s gas supply routes to Europe

Russia has stopped gas supplies to Poland, Bulgaria, Finland and the Netherlands, and constrained supplies to eight others. Spain’s Enagas has said Spaniards have nothing to fear from a Russian cutoff since it could access gas from elsewhere.

Here lies the risk for Russia. It can go for broke in trying to make the EU’s resolve crumble this winter by turning the power off in as many European countries as possible. But Putin will have only one shot at this, and if he fails and Europe’s reserves are big enough to survive to next summer, the west will be on the brink of breaking free from its suicidal dependence on Russian gas. Putin will have permanently blown up Russia’s chief source of income and largest gas export market.

Fiona Hill, a former US assistant state secretary, argues there are electoral risks in this for Moscow, especially in 2024 when Putin seeks to extend his term. She says Putin “wants to get this conflict over with. He wants to seem legitimate. He wants us to be the ones who feel that we don’t have time – when he also has a clock ticking.”

July 19, 2022 at 12:25AM Patrick Wintour Diplomatic editor

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