EU NATIONS PROBLEM AND ITS IMPACT ON MARKET

Forget about what IMF or the world bank is projecting for the EU the ground reality is far more painful than these documented texts and media prints. You will find social unrest and income inequality in the coming months due to the energy price crisis. Before the war, about 55% of their gas imports used to come directly from Russia which came down to about 30% over the summer. But about half of all German homes rely on gas for their heating.  The savings ratio of the EU states is coming down due to the energy crisis. In Germany, the savings ratio has collapsed to 10.8% b/c German citizens can put aside less and less due to inflation. Will fall even further when the energy crisis hits full force.

Well, you will be shocked that Deutsche Bank said that all their offices across Germany will no longer get hot water in the washrooms. In n Berlin, where about 200 public monuments are now not lit up at night. There are endless such acts across the EU.  Many EU states are having blackouts, two hours off for every six hours. Natural gas prices topped $3100 per 1000 cubic meters in mid-August, a 610% increase over the same time last year as measured by the Dutch TTF market. Britain’s National Energy Action charity projects an increase from 4.5 million U.K. households to a full 8.5 million will face energy poverty this winter.

This Winter inflation in the Eurozone will be expensive which is known by everyone but what is not being taken into consideration is that there will be Greece-like conditions in the coming days. Yes, we might get defaults in a few countries due to the rising cost of Inflation. Further the way energy cost has gone up for the EU as a whole we will find a significant slowdown in GDP rising from the stoppage of production. In fact, the EU slowdown will be more prolonged due to the mess created over the last decade with energy source management.  The annual inflation hit a record 9.1% in August within the eurozone, the highest since records began. But inflation varied widely among EU countries, up 25.2% in Estonia, 11.3% in Greece, and 8.8% in Germany.

 The slowdown of the EU will be on the consumption side as well as more due to cutting down on manufacturing which will have a ripple effect on the economy. For example, those Stainless steel mills are closing across Europe due to the ongoing energy crisis. As per the calculation, around three million tons of Europe’s stainless-steel capacity is at risk. Rising prices lead to defaults in demand and hence cutting down on production is the way out. 

German energy giant Uniper seeks an additional €4bn from a state-owned lender to support its business. Surging costs force utilities to extend more collateral. The German energy giant is losing €100mln a day as the shortfall in Russia deliveries now amounts to 80%.

On the other side energy cost in damaging even battery production in the EU.  In the coming months and quarters, we will find macro numbers plummeting for the EU creating more pressure on the Debt market in parallel to the Equity market.  Well by debt I wanted to draw attention to Italy’s total government debt is now up to $2.52 trillion, 150% of the country’s gross domestic product. It’s larger than the combined government debts of Greece, Portugal, Ireland, and Spain, all of which were given loans by the European Central Bank following the 2008 financial crash.

 Hence the interest rate hike decision will create a major setback for the global economy and more importantly, we will find interest coming down and energy-related subsidies being given to tide over the winter crisis. On the other hand, we will find stimulus packages in the form of Direct Transfers to the EU countries this winter to battle out the rising energy cost. There is no other alternative rather than increasing the debt limits of the EU to enable the citizens to fight the rising energy cost.

 Falling GDP increases the Debt to GDP ratio for any country and for the EU it is very easy to calculate the growth. European Union Government debt accounted for 87.8 % of the country's Nominal GDP in Mar 2022. This will soar to the level of 90% to 92% in the coming winter. You will find more imports by the EU compared to the historical levels since production in the EU is coming to a halt. This will also increase the CAD for the EU. The below chart speaks about the default risk but what is now depicted is the interlinked banking and financial services and the debt papers involved between the EU 27 countries.

 You will find significant social crime growth in the EU due to rising energy costs and living life. Income inequality and poverty levels will rise significantly in the EU in the coming quarters creating longer problems for the economy. At the same time, the stimulus money will be coming up for the society at large to save the people from the energy-driven crisis. The French government has offered lower-income households a €100 inflation bonus, the UK a £650 cost of living allowance, and pensioners will receive an additional one-time payment of £300 Italy is giving low and middle-income families for their bills with a €200 bonus payment., Belgium offered a payment of €225 and Germany paid each taxpayer a one-time sum of €300.  Well, these payouts will increase by around 25% to 40% in the coming winter to face the energy crisis. 

We will witness significant development in bitterly and alternative energy sources coming up from the EU in the coming next 2 years.  Every project on alternative energy is being expedited for significant results in a shorter time frame compared to the previous time frames.