Eurozone economy heads for paralysis

Governments will allow coal-fired power stations to produce more power

(Image credit: © Frank Bienewald/LightRocket via Getty Images)

published 20 July 2022

Is the eurozone heading for another crisis?

The eurozone is fighting “fires on all fronts”, says Mehreen Khan in The Times. Squabbling in Italy’s governing coalition has left the bloc’s third-biggest economy heading for “a summer of political paralysis”, with the future of prime minister Mario Draghi in doubt.

European governments have begun to work under the assumption that Russian energy will be cut off entirely this year, say Ewa Krukowska and John Ainger on Bloomberg. The European Commission is reportedly preparing a plan for “a voluntary 15% cut in natural gas use by member states starting next month” to conserve stocks for winter. The Commission thinks a Russian gas cut-off and a harsh winter could wipe 1.5% off EU GDP.

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Germany has reduced its dependence on Russian gas from 55% to 35% since the invasion of Ukraine, says Philip Oltermann in The Guardian, but that still leaves it heavily exposed to Putin’s whims. For now, politicians hope to spare households from rationing while imposing restrictions on industry, which accounts for roughly one-third of gas use. Yet the chemical and pharmaceutical industries are warning of unintended “domino effects” from more supply-chain disruption.

“The good news is that the EU’s tanks are now almost 60% full”, more than this time last year, Leslie Palti-Guzman of data firm Leviaton told The Economist. Europe has also become a major importer of liquefied natural gas (LNG), with imports up 70% year on year in the first quarter. “To the chagrin of greens” European governments are also granting waivers for “filthy coal” plants to “crank out more power”.

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Alex is an investment writer who has been contributing to MoneyWeek since 2015. He has been the magazine’s markets editor since 2019.

Alex has a passion for demystifying the often arcane world of finance for a general readership. While financial media tends to focus compulsively on the latest trend, the best opportunities can lie forgotten elsewhere.

He is especially interested in European equities – where his fluent French helps him to cover the continent’s largest bourse – and emerging markets, where his experience living in Beijing, and conversational Chinese, prove useful.

Hailing from Leeds, he studied Philosophy, Politics and Economics at the University of Oxford. He also holds a Master of Public Health from the University of Manchester.