Eurozone economy heads for paralysis

Record high energy prices, the threat of recession in Germany and squabbling in Italy's government has left the eurozone fighting fires on all fronts.

Coal-fired power station in Germany
Governments will allow coal-fired power stations to produce more power
(Image credit: © Frank Bienewald/LightRocket via Getty Images)

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.

Between record energy prices, the threat of Russian gas being switched off and the prospect of recession in Germany, policymakers in Brussels and Frankfurt already had enough to deal with.

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.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free
https://cdn.mos.cms.futurecdn.net/flexiimages/mw70aro6gl1676370748.jpg

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

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”.

Contributor