Once they are done breathing a sigh of relief, policymakers should reflect on what this means as they ponder their next geopolitical challenge: how to “de-risk” the continent’s trade with China
In retrospect, the dependence built up by dozy policymakers and short-sighted businesses on Russian gas was reckless: gas accounted for a quarter of energy consumption in Europe, and Russia made up a third of that. Yet the impact of the Kremlin turning off the tap fell well short of the “gastastrophe” feared by some. Prices for natural gas in Europe have tumbled from over €300 per megawatt hour last summer to €30 in recent days. That is high, but back within the normal historical range.
Rather, millions of firms and people in Europe have turned out to be unwitting heroes of making do. “Market economies have a tremendous ability to adapt to changing circumstances,” says Mr Moll, a professor at the London School of Economics. Households turned down the heating, at least in countries where politicians did not cap energy prices in a bid to placate voters. Factories once dependent on gas found ways to switch to other fuels.
One coping mechanism is to replace imports with stuff made in Europe. This idea, popular with trade sceptics in France, gained ground during the pandemic, when theran short of facemasks and paracetamol. Voters were promised that production would be “reshored”. Thus mask factories popped up in France ; a paracetamol plant is in the offing, backed by millions in state aid. The Russian gas imbroglio has increased the list of products statists think Europe should make at home.
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