Does The G7 Actually Have A Plan Against Russia?
While price caps and debarring gold imports from Russia may offer some short-term fixes, at the end of the day, it is the European economy that faces an imminent threat in the upcoming months.
Gathering at the Bavarian Alps, leaders of Canada, the European Union, France, Germany, Italy, Japan, the United Kingdom, and the United States, along with the leaders from several countries including India, South Africa, and the war-ravaged Ukraine, had their singular focus on Russia.
The US, unable to strangle Moscow’s energy exports, now moving to China and India majorly, was leading the discussions on price caps for energy imports from Russia.
For the grouping of G7, the primary objective was to limit Moscow’s revenues, even if it meant courting Saudi Arabia and Venezuela for increasing oil production or risking high inflation even with a looming threat of an economic slowdown or putting Europe through a brutal winter with low energy supply from Russia and renewed dependence on coal-powered plants.
Critical unaddressed domestic challenges remain for the majority of the G7 members. For Joe Biden, America’s inflation, the highest in forty years, adds to his worries before the mid-terms in November where his political leverage is all set to be dented in the Senate. For Emmanuel Macron, losing the majority in the national assembly, recently, to the extreme right and also a left alliance, driven by the green agenda, hurts his policy ambitions.
In Germany, with Chancellor Olaf Scholz, the new leader at the helm of affairs, there is an emerging foreign policy challenge in the wake of the Russia-Ukraine crisis. Even with the 100 billion euro defence fund announced to upgrade the defence forces a few days after the invasion, a long winter awaits as the country moves to gas rationing.
For Boris Johnson in England, post the party gate scandal, the backlash is emerging from his own MPs, and while he may have survived to fight another day, the government continues to tread on a thin line.
To add to the domestic challenges, there is uncontrolled inflation that is giving the central banks a headache, globally. The annual per cent change in the consumer price index, in April 2022, was 6.8 per cent in Canada, 7.4 per cent in the Eurozone, 4.8 per cent in France, 7.4 per cent in Germany, 6.5 per cent in Italy, 2.4 per cent in Japan, 8.3 per cent in the United States, and 9 per cent in the United Kingdom. The price shock stems, mainly, from the increase in food and oil prices post-February 2022.
In the United States, in April 2022, the annual per cent change in the consumer price index for energy was more than 30 per cent, for the United Kingdom it was over 50 per cent, 19.5 per cent for Japan, 39.43 per cent for Italy, 35.4 per cent for Germany, 26.81 per cent for France, and 26.38 per cent for Canada.
For the Central Banks, globally, after the recession of 2008, the go-to move was to cut interest rates and have an abundance of liquidity in the economy. This had its bearing on the markets where the music is beginning to slow down.
A better part of 2020, given the pandemic, was about interest rate cuts, with May 2020 being the peak. However, the trends have reversed in May 2022. However, coupled with the Covid-zero lockdowns in China, resulting in supply chain disruptions, the central banks are faced with a catch-22 situation. To curb inflation, or to risk a slowdown, yet again?
While the central banks aim for a soft landing, the Eurozone is now looking at a long winter on the energy front, as Russia begins to flex its crude and gas muscles. Citing maintenance problems, Russia cut the gas supply to Germany by over 60 per cent earlier this month. Ten EU member states have declared an emergency on the gas front with the International Energy Agency warning that Europe could be without Russian energy in the second half of the year.
Since the beginning of the war, Europe has halved its imports of Russian gas, but the shift to renewables, completely, is a pipe dream, and alternate sources of energy have been exploited to their maximum potential.
For countries like Estonia, Hungary, and Austria, relying on Russia for more than 60 per cent of their gas, or Germany, Greece, and Italy, relying upon over 40 per cent of their needs, a squeeze from Moscow would not only push them back towards coal but also have a direct impact on inflation and economic revival post-pandemic.
Russia, for now, has been able to dodge the sanctions of the West by diverting its energy exports, mainly crude, to China and India, the latter being more than happy to pick up the supplies at a discounted price, and thus, the G7 desperation is palpable. While price caps and debarring gold imports from Russia may offer some short-term fixes, at the end of the day, it is the European economy that faces an imminent threat in the upcoming months.
Some commentators argue that in the long run, it is Russia’s battle to lose, and they might be true, but how far is the West willing to go when it comes to inflation, economic slowdown, and political consequences in order to hurt Russia three or five years now. Short-term pain is no guarantee for long-term luxury, and yet the West is willing to take that path.
The question thus remains-does the G7 actually have a plan against Russia?
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