As we detailed yesterday, almost two months after Europe rushed to declare it would impose unprecedented sanctions on Russia in response to Putin's invasion of Ukraine with no regard for how such sanctions would boomerang and cripple its own economies, the old continent which was and still remains hostage to Russian energy exports, is finally grasping the underlying math which was all too clear to Vladimir Putin long ago.
The European Union’s executive arm said yesterday that the currency bloc’s economy would expand about 0.2% this year, with inflation topping 9%, as governments struggled to replace the imports.
This severe stagflationary scenario is highlighted by Siegfried Russwurm, president of the Germany’s biggest industry association BDI, warning that the cessation of Russian gas deliveries would have a dire effect on the German economy.
“The consequences of cutting off Russian gas supplies would be catastrophic,” he told tabloid Bild am Sonntag in an interview published at the weekend.
Russwurm added that cutting off Russian gas would deprive businesses of fuel in Germany, forcing businesses to close production lines.
“In this situation many companies will be completely cut off gas supplies. In many cases, affected businesses will be forced to stop production, some businesses may never be able to start again," he warned.
Europe's "sudden realization" of just how destructive pushing through with full-blown sanctions will be, somewhat similar to that of Elon Musk who "learned" about the millions in Twitter spam accounts only after bidding $44 billion – is why over the weekend, Bloomberg reported that the European Union is set to fully water down its so-called sanctions and to offer gas importers a solution to avoid a breach of sanctions when buying fuel from Russia while satisfying President Vladimir Putin’s demands over payment in rubles.
All of which helps explain why the Ruble is trading at a five-year high against the euro…
And in typical European fashion, the messaging is full of confusion, with guidance for companies is one thing while the propaganda disseminated for public consumption totally different, all the while the biggest winner remains Putin and Russia which yesterday reported a new record high in its current account.