The ban on Russian energy could cost between 3.6 and 7.2 billion euros for the French economy

The crimes committed by the Russian army on Ukrainian soil have revived debates about the need for tougher sanctions in Europe. After the United States and Canada,European Parliament President Roberta Mitsola on Monday called on the leaders of the 27 countries to impose a “binding ban” on Russian energy imports, accusing Russia of committing “war crimes” in Ukraine. “Europe must accelerate its policy of not relying on the Kremlin, freeing itself from Russian energy supplies, imposing a binding embargo and indirectly stopping the financing of bombs,” The official announced at the opening of the plenary session of the European Parliament in Strasbourg.

The announcement comes as the leaders of the 27 countries “urgently” discuss new sanctions against Moscow, according to EU High Representative Josep Borrell. Paris and Berlin recently decided to expel Russian diplomats from their lands.

How do we stop the Russian war machine without paying a heavy price?

While the 27-nation European Union members are set to announce a new launch of sanctions on Wednesday, the Council for Economic Analysis (CAE) just revealed a particularly informative note on the macroeconomic impact of the European ban on Russian imports.

The overall effect appears to be “moderate” even if there are disparities. Since the beginning of the conflict, European countries have faced a particularly difficult dilemma to deal with. How do we stop the Russian war machine without paying a heavy price for sanctions? As a reminder, Europe has already bought tens of billions of euros of Russian gas and oil since the beginning of the conflict. At the foot of the wall, nations must overcome their divisions to announce a new set of measures against the Kremlin.

War in Ukraine: Europe has bought nearly 17 billion euros of Russian oil and gas since the start of the conflict

Very different effects by country: from 0.15% of GNI to 5%

It is clear that deprivation of Russian gas, oil or coal will have different repercussions depending on the degree of vulnerability of the country. For France, economists David Bagy, Benjamin Moll, Camille Landis and Philip Martin estimate the effect to be relatively “low”, estimated between 0.15% and 0.3% of GNI (GNI takes into account the balance of income flows from abroad)or between 3.6 and 7.2 billion euros according to our calculations.

On the other hand, Germany, whose economic model is largely based on energy-intensive industry, may suffer more broadly from such a ban. The negative repercussions are greater with a loss in GNI estimated between 0.3% and 3% in a pessimistic scenario, That is between €11 billion and €110 billion. At this point, the German alliance has moreover shown a greater reluctance than the other major powers in the Eurozone to cut off Russian energy.

Germany, the weakest link in Europe

finally, Some countries will have to bear the brunt of the effects of this cut. These are in particular Bulgaria, Finland, Lithuania, the Czech Republic and Slovakia. These countries may experience losses in GNI of between 1% and 5% of GNI according to the calculations of the Council for Economic Analysis.

Economies and companies are able to reduce the impact of the shock

This relatively mild impact on the European economy can be explained by the ability of countries and companies to withstand such a shock. The two long years of the pandemic have shown that many economies are able to recover despite the severe collapse in activity in many countries. “me’to analyze Historical experiences of very strong shocks (Fukushima in Japan or Covid-19 in China) that have potential effects along production value chains also show that companies, individually, andEconomie, In general, able to reduce the impact of shock “, Explains the Research Center attached to the Prime Minister.

Oil and Gas: Limited Replacement Capabilities

The Center for Analysis headed by economist Philip Martin believes that companies and countries are able to find alternative energy sources and intermediate or final goods in the short term. However, the substitution capabilities can be limited.

Recently, Saudi Arabia and the United Arab Emirates have shown Not wanting to increase their oil supply. US shale oil producers are currently experiencing bottlenecks in supply chains and labor shortages. Finally, the larger delivery of liquefied natural gas (LNG) in Europe requires specific terminals often absent from the ports of the Old Continent.

In addition, the prospect of a protracted conflict could be a game-changer. Indeed, greater energy independence in Europe will require significant investments in more sustainable energy sources. However, at this point, France is the only EU country that has failed to meet its targets in terms of renewable energy in total final consumption.

Renewable energies: why France’s delay is a problem

Tariffs are more effective than bans, says CAE

Among the other options on the table is an increase in tariffs On Russia’s energy imports, say at 40%, it would be “more effective than a strict ban,” the study estimates. It will lead to a “very severe reduction in imports”, by about 80%, while “severely” reducing, by 3 or 4, the economic losses of the countries most dependent on Russia.

However, economists recommend the implementation of fiscal and monetary policies Targets the sectors and households most affected by higher gas prices that may be caused by embargo or tariff hikes in order to avoid energy shock amplification.

Inflation: Economists say government measures are ‘expensive’ and not highly ‘targeted’

Diminishing growth prospects

It is still difficult at this point to assess all the macroeconomic consequences of the war. Most forecasting institutes have revised their growth figures for 2022 downward, and after a strong rebound in 2021 in the wake of the 2020 downturn, the French economy is suffering from high energy prices. After the industry, tertiary firms are currently facing rising costs.

The latest Markit PMI index released on Tuesday, April 5th, indicates that “Price-paid inflation accelerated sharply to an all-time high in March, prompting French service providers to raise their rates at a record pace.” If inflation appears to be hitting France to a lesser degree than most European countries, implementing a eurozone-wide Russian energy embargo will inevitably have repercussions on energy prices, and therefore growth in the short term. This prospect may make it more difficult for European diplomats to reach an agreement on sanctions.

4.5% inflation: why France does better than its European neighbors