The West united against Russia. Will it survive the price hike?

“I only hope you will not lose this feeling of loneliness,” he said, again calling for maximum pressure on Moscow.

Three months after Russia’s invasion of Ukraine, leaders from Europe and the United States stressed that they remain committed to upholding unprecedented sanctions in a bid to force President Vladimir Putin to withdraw their forces.

“I am very concerned about what the recession in Europe might do to Europeans’ resolve to stick with it and continue to escalate sanctions,” Jason Furman, a Harvard professor who previously served as chief economic adviser to President Barack Obama, told CNN Business.

Already, cracks began to form in the united front of Europe. The Hungarian Viktor Orban, who was not present in Davos, was dissidents led in blocking EU plans to impose an oil embargo on Russia, in an attempt to cut off a major source of revenue for Moscow. The goal of eventually getting rid of Russian gas may be more difficult.
In the United States, President Joe Biden and Democrats under huge pressure To prove that they are serious about fighting inflation ahead of the midterm elections in November, even though most of the factors causing it, such as crises in the supply chain and rising consumer demand, are largely outside their control.

This could complicate efforts to keep pressure on Russia, Despite the warnings of billionaire George Soros and others that appeasing Putin would have dire consequences.

Fuel and food prices have risen

In Davos, leaders from the government and business stressed that they cannot give in to Putin. They agreed that the reaction to the 2014 annexation of Crimea, as well as the poisoning of Sergei and Yulia Skripal in Salisbury, England, in 2018, was too weak in hindsight.

The West’s historic sanctions against Russia this year may not be enough either. The Russian economy has taken a hit, but is holding up better than expected, buoyed in part by strong oil and gas revenues. This allowed the central bank cut interest rates Thursday.

“We have to stop compromising,” Eduard Heger, Prime Minister of Slovakia, said passionately during a panel discussion. He added that the settlement with Putin had caused a “fierce war.”

I talk to dinner guests, Soros warned That the invasion of Ukraine could mark the start of World War III, he said Putin must be defeated “as soon as possible” if the world is to preserve civilization.

But the economic background may make life more difficult for politicians back home. annual Inflation among the 19 countries that use the euro reached 7.4% in April, its highest level ever. In the United States, the inflation rate was 8.3%, and in the United Kingdom it was 9%.

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The big factor is energy costs. It was already rising due to the post-pandemic imbalance in supply and demand, but it was further driven by Europe’s efforts to reduce its dependence on Russian energy.

An oil embargo has been suspended by landlocked countries such as Hungary and the Czech Republic, which say it will take years to transition to other energy suppliers or sources. that it It is expected to be agreed upon in the coming weeks.

“The economic situation is definitely difficult. I don’t think it will affect the consensus on oil,” said Mojtaba Rahman, managing director for Europe at political risk consultancy Eurasia Group.

However, there will be consequences. Fears of power shortages have already driven prices up dramatically. In the United States, the average price of a gallon of regular gasoline hit a record $4.60 on Thursday. The situation is worse in Europe. Recent data shows that drivers in the UK pay $8.06 a gallon, and $8.43 a gallon in Germany.

At the same time, food prices are skyrocketing as the war disrupts exports of key products such as wheat and sunflower oil, and as later in some countries such as India. Enact export bans To protect local supplies. In April, food prices in Germany increased by 8.6% compared to the previous year.

“This is where the impact of the war in Ukraine became most evident,” Georg Thiel, head of Germany’s Federal Statistical Office, said earlier this month.

European Commission President Ursula von der Leyen noted this week that “it is fragile countries and vulnerable populations that suffer the most”. She added that bread prices have risen by 70% in Lebanon, and food shipments from Ukraine’s Odessa have been unable to reach Somalia, which is battling a devastating drought. Protests over price hikes erupted in Peru and led to overthrow the prime minister in Sri Lanka.

However, even in Europe and the United States, lower-income families are increasingly forced to choose between “heating and eating”, which represents a larger proportion of their budgets. Economists worry that a dip in spending could trigger a recession, especially as central banks raise interest rates in an attempt to tame inflation.

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“There is a real danger to a lot of people,” Gabriella Bucher, executive director of Oxfam International, told CNN Business. She added that even in the “rich world”, there are people who are struggling “to meet their basic needs right now.”

The British government acknowledged the problem on Thursday when it announced an unexpected taxation of $6.3 billion on oil companies to fund payments for people struggling with energy bills.

The future of western solidarity

US and European officials and senior corporate officers say Ukraine’s victory is crucial. The brutal war and humanitarian crisis must end, and democratic values ​​must prevail at what German Chancellor Olaf Schulz called a “turning point” for the world.

“It’s hard to see any cause that unites people in the West as much as this one,” David Rubinstein, the billionaire founder of the Carlyle Group, told CNN Business. “I don’t think the increased increases that can be attributed to this in terms of inflation will change anyone’s opinions.”

US officials also see standing up to Putin as imperative to curb the ambitions of Chinese President Xi Jinping, who they say is closely watching how things go.

“Deterrence is key here,” said US Congressman Michael McCaul, the ranking US congressman on the House Foreign Affairs Committee. “As Xi looks at what is happening in Ukraine, [he’s asking,] ‘Does it deserve it?’ We have to convince him that this is not the case.”

But balancing policies and economic concerns will not be easy. Schulz acknowledged that “politicians have an important job to do” as they reconcile different parts of their mandate from the public.

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Abdul Rahman said this could become a bigger issue in the event of a major escalation by Russia. That could trigger louder calls for a complete ban on Russian natural gas, which made up 45% of Europe’s supply last year. Many travel by pipeline, which makes finding alternatives even more difficult.

That’s not on the table at the moment, though Schulz said Germany is working “totally” to end its dependence on Russian gas as soon as possible. But if it were seriously debated, it would be harder to sell than anything else the West has proposed so far.

The companies, while providing strong support to Ukraine, are also concerned about the increasing pressure on their business. Herbert Dies, CEO of Volkswagen (VLKAF)told CNN Business that the full effects of rising raw material costs and inflation won’t be apparent for another six or 12 months, creating a “really tough” operating environment.

“We have to achieve something with sanctions,” he said. “So far, we’re basically going from escalation to escalation and we don’t have a choice. So I think sanctions, yes, but how are we going to end this?”

Henry Kissinger, former US Secretary of State, provoked a violent reaction earlier this week when he appeared to suggest that Ukraine agree to give up much of Donbass and Crimea to Putin.

Kissinger said: “Negotiations must begin in the next two months before they lead to turmoil and tensions that will not be easily overcome.” “Ideally, the dividing line should be a return to the previous situation.”

Compare Kissinger’s comments to Zelensky Appease Nazi Germany In 1938.

“I don’t want to hear the word ‘appeasement’ anymore,” European Parliament President Roberta Mezzola said Wednesday to applause.

However, a weak economy and high inflation could weigh on politicians when they return home, prompting a warning from NATO Secretary General Jens Stoltenberg.

“Freedom is more important than free trade,” Stoltenberg told the Davos crowd. “Protecting our values ​​is more important than profit.”

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