Europe is facing strong economic headwinds. Record inflation, the need to recover from the pandemic, and a divided response to Russian troop deployments along the Ukraine border, all chill the February air.
Whether this complex situation will thaw in the coming weeks and months depends on many moving parts – including Vladimir Putin’s tanks, energy prices and the ongoing effects of COVID – and how the global community responds to them.
None of this is straightforward. For example, allies in the west (including Europe) have promised massive sanctions if Russia invades Ukraine, but how effective these are as a deterrent is debatable. Russia can, in the medium term, sell much of its energy through an alliance with China, and avoid much of the sanctions’ impact.
Putin has also set up special autonomous regions within Russia as “sanctions proof” economic sanctuaries. Many of the country’s wealthiest citizens are on notice and will have had time to adjust their finances in the face of being cut off from access to western banks. Some European banks would themselves be badly hit by sanctions.
The real economic costs of an invasion for Russia then, are far from clear. And nor, for that matter, is Putin’s ultimate goal. At the time of writing at least, it’s possible this whole tense affair may be a bluff to weaken the Ukrainian economy and sow European discord.Click here for the full article