As of June 21, 2022, petrol prices in France had reached €2 ($2.10) per litre, bringing unleaded fuel prices up 50 centimes in the past year, according to the Connexion. Thus, the cost of a full tank of gas totals €100 ($105.12). Skytg24 Italia reports that the price of petrol has gone up 28.5% compared to this time of last year.
These effects come at a time when the EU economy was just starting to recover from the pandemic. Before the war began, Ukraine and Russia produced almost one-third of global wheat and barley and Russia supplied 40% of EU demand of natural gas. As a result, GDP growth within the EU has slowed and inflation is on the rise, expected to hit its highest peak of 6.8%.
The increased price of these essential raw materials has led to inflation for many other commodities in the European Union, from the previously estimated 3.9% is already up to 6.8%.
The war has interrupted many supply chains, namely the German automobile industry substantially dependent on cables produced in Ukraine, but also the aerospace industry.
Most affected are the EU citizens who see the cost of their everyday life increase daily, particularly when buying groceries and refueling their cars.
Much of this can be explained by the fact that Europe is much more dependent on Russian energy than the US, according to economist and Deputy Director at Bruegel Maria Demertzis. Consequently, energy bills, especially gas and light bills, have become more expensive which directly raises the cost of living in the EU.
Demertzis explains that the price of flour rising in Belgium, where she lives, is visible in the higher price of bread.
The most considerable risk and fear are that of significant stagflation, stagnating growth and increased inflation.
According to ANSA, the cost of coal increased by 97%, petroleum by 30%, electricity and gas by 45% and agricultural goods by 32%. This significant increase in the price of raw materials causes direct increases in the cost of many goods and services, namely oil and food.
These increases will inevitably hit different EU member states differently, intensifying disparities among them.
However, economists maintain that the effects of the war on the EU economy will still be less than the effects of the pandemic.
On June 15, 2022, ANSA reported that “The biggest damage from energy price hikes linked to the Ukraine war have and will be seen in Italy.” On the same day, ANSA also reported that Russia was to cut gas to Italy by an additional 15%.
As a result, ANSA found that energy bills in Italy “will rise by between 5.7 and 6.8 billion euros a month.”
In terms of the economic effects for Italy, poverty remains at its highest levels. The Italian National Institute of Statistics (ISTAT) explains that the situation has not gotten better since the historic high levels of absolute poverty reached during the 2020 pandemic.
According to ISTAT, the post-pandemic increase in consumer spending was not sufficient to mitigate the rise in inflation, which rose by 1.9% in 2021. Therefore, about 5.6 million citizens currently lie in absolute poverty in Italy.
On June 15, Il Fatto Quotidiano, an Italian daily newspaper, wrote “Moscow has in fact reduced, at least for today, the supply of oil to Italy by 15%”, increasing the price of oil. Although natural gas and oil reserves abound, there are strong efforts to diversify suppliers of energy for Italy as quickly as possible.
Robert Habeck, vice Chancellor of Germany, claims that Moscow’s decision has political intentions to raise the price of gas in Europe.
Moscow has further announced that the export of oil through Nord Stream 1 will decrease by 33%.
Inflation continues to worsen in the EU and on June 17, ANSA confirmed that according to Eurostat inflation in the EU is estimated to have reached a record 8.1%.
However, Demertzis, maintains high hopes that the European economy is equipped to get through this crisis and is a good opportunity for the EU economy to become more self-sufficient and green energy-focused.