Economy

Bertrand Candelon’s economic decoder: the war hits an already anemic growth (chronic) – Belgium

Bertrand Candelon’s economic decoder: the war hits an already anemic growth (chronic) – Belgium
Written by on100dayloans

This historical reality, forgotten since 1989, constitutes a new economic order.

The invasion of Ukraine by Russian troops is, after the Covid pandemic, a new test for our economies. This time, we have to face a shock which is not fortuitous, as the appearance of a virus can be, but which is the fruit of a human decision and, more generally, of a system that t was believed to have disappeared forever with the fall of the Berlin Wall in 1989. Beyond the human consequences of this aggression, the short-term economic repercussions are already being felt. Even if at present it is unrealistic to envisage a credible peace scenario, it is already possible to outline the main consequences…

The invasion of Ukraine by Russian troops is, after the Covid pandemic, a new test for our economies. This time, we have to face a shock which is not fortuitous, as the appearance of a virus can be, but which is the fruit of a human decision and, more generally, of a system that t was believed to have disappeared forever with the fall of the Berlin Wall in 1989. Beyond the human consequences of this aggression, the short-term economic repercussions are already being felt. Even if at the present time it is unrealistic to envisage a credible peace scenario, it is already possible to outline the main economic consequences of this conflict in the long term. First, the invasion of Ukraine means that war can once again take place on European soil. This historical reality, which had been forgotten since 1989, constitutes a new economic order. European states will be forced to increase their investments and their current expenditure in the defense sector in order to guarantee the inviolability of their borders. This budgetary effort will be significant for Belgium, which is in the penultimate place of the countries of the North Atlantic Treaty Organization (just ahead of Luxembourg) and which allocates to Defense around 1% of its gross domestic product. The effort will also be particularly costly for countries already heavily indebted after the Covid crisis, especially since studies show that the economic fallout is limited in this area of ​​activity. The increase in military spending will therefore necessarily take place, in order to limit their budgetary impact, to the detriment of other sectors which are more likely to generate future growth (education and innovation) or quality of life (health care, person…). The Russian invasion will also force European countries to radically review their energy policies. For years, their governments have placed energy independence in the hands of some of their suppliers, particularly Russia and the Gulf countries. Likewise, in order to reduce costs – mainly of research and maintenance – and to satisfy purely ideological objectives, they excluded certain sources of energy, as Germany did with nuclear power. It now seems obvious that while waiting for carbon-free, renewable energy generated on European soil, energy policy will have to be based on greater diversification of suppliers (what is happening today in Russia could unfortunately happen again tomorrow in the Middle East or in other parts of the world) as well as on the mobilization of all the sources of energy at our disposal. Without having been anticipated, this new energy policy will have substantial costs and will be accompanied by significant budgetary reallocations. It is therefore clear that the consequences of the Ukrainian crisis will not stop at the images we see in the media but will lead to a radical change in European economic policies in the long term. These reforms will inevitably have a significant cost and will reduce our future potential growth, which is already anemic after the recent crises.

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