Financial markets are at least alive to the potential fallout. The euro sank below $US0.99 for the first time in two decades,while benchmark European gas prices jumped by as much as 35 per cent,in the clearest sign yet of fears that the energy crisis is likely to spark wider economic and financial turmoil.
Investor nerves have been heightened by expectations that the European Central Bank is poised to deliver the largest interest rate increase since the creation of the euro as it fights to bring surging inflation under control.
Economists expect the ECB to raise key interest rates by 0.75 percentage points later this week,after it emerged that prices rose by a record 9.1 per cent in the year to August. It would be the biggest rate rise since the single currency was created in 1999.
Closing down the Nord Stream is an indication of how far Putin is willing to go.Credit:Bloomberg
EU leaders seem more content with lambasting Putin as an unreliable trade partner,as if somehow the jury was still out on that one. Indeed,it didn’t take long for the Kremlin to admit that it is effectively holding Europe to ransom over Nord Stream.
The “oil leakage” version of why it was permanently shut down lasted a whole three days before Moscow eventually came clean. Supplies to Europe will not resume in full until the “collective West” lifts sanctions,Putin’s spokesman Dmitry Peskov said.
It is a race to see who can inflict the most damage on the other side first. With Europe determined to wean itself off Russian oil and gas imports according to its own carefully managed time frame,Putin has decided to turbo-charge the split and make it as painful as possible,in an effort to undermine support for Ukraine among European voters.
It will be the greatest test of European unity since the sovereign debt crisis that engulfed the Continent a decade ago.
In the meantime,European powers are pinning their hopes almost entirely on gas storage facilities,it seems. Brussels has set a goal of filling reserves up to 80 per cent by November but Germany had surpassed that target by the end of August after a mad scramble to secure supplies and has now hit 85 per cent. France is at 92 per cent. Italy has reached 83 per cent.
Backed by government loans,energy providers have spent the summer hoovering up as much gas as possible at any price but officials concede that even at close to full storage,Germany only has enough gas for two and a half months of demand if Russia switched off flows.
Loading
Elsewhere,some are holding onto the fact that Nord Stream 1 represents a minority of Germany’s annual demand. Regardless,closing it down is an indication of how far Putin is willing to go. The Bruegel think tank thinks Europe should be braced for a winter with “zero Russian gas”.
Behind the scenes,the panic is palpable as Europe is effectively placed on a war footing. Industry has been scaling back production. Price caps and emergency credit lines for power companies facing liquidity problems are likely to be next,EU Commission president Ursula von der Leyen has said. The final stage is to physically limit supplies to factories and other energy-intensive sectors.
Blackouts and rationing are likely to be the precursor to a sharp recession. Living standards will plummet. It will be the greatest test of European unity since the sovereign debt crisis that engulfed the Continent a decade ago.
Telegraph,London