Economy under pressure: Putin's long list of victims

Russia's attack on Ukraine leaves behind immeasurable suffering, massive destruction and incalculable damage.

Those who can, go: more than two million people have already fled, and millions could still come.

The neighboring countries of Poland, Slovakia, Hungary, Romania and the desperately poor Republic of Moldova are taking care of the displaced people in a touching way.

Their humanity makes the state terrorism for which Russian President Vladimir Putin is responsible all the more apparent.

With his campaign, Putin is also making these states, which 30 years ago evaded subjugation by Soviet power, victims of his war.

The economic and political long-term costs cannot yet be calculated, but the economic consequences are already serious.

Disproportionate discounts on stocks, bonds and currencies in economically strong countries show how alarmed investors are.

And even in small, distant Albania, the currency lost 5 percent in value.

Energy price shocks for companies

The billions in costs for caring for the refugees are just a start.

As much as we wish people to be able to go home soon, that doesn't seem very realistic.

Above all, the receiving countries, not least the EU as a whole, have to pay for the integration.

Many of the countries are vulnerable.

The pandemic, with its high excess mortality, has shown how low the welfare state level is, despite years of prosperity and better living conditions.

The moment the economy regained its footing, the aftermath of the war is now stumbling it again.

It starts with disrupted supply chains, which lead to restrictions in car plants from the Czech Republic to Slovakia and Hungary to North Macedonia.

The automotive industry is the industrial backbone of the region.

The consequences of the intensified energy price shock for companies and households are more severe.

Governments everywhere are taking countermeasures, whether with questionable instruments such as price freezes or subsidies and tax cuts.

The public budgets are again burdened.

The deficits are tolerable compared to Western European levels.

But financial stability erodes when governments pursue unsound budgetary policies for years, as in Romania and Bulgaria, or, as is now the case in Hungary, hand out election gifts in the form of higher pensions and minimum wages.

reorganization of the world economy

Price shocks on the energy markets and the resulting price shocks for fertilizer and food will often drive inflation to or above double-digit levels.

Some central banks are defending price stability with sharp interest rate hikes.

The bottom line is that growth will flatten out everywhere, even as Russian oil and gas keep flowing.

Although Eastern Europe has sharply reduced trade in goods and services with Russia since its annexation of Crimea, many countries depend on Russian energy supplies, some more than Germany.

It is mainly about gas and oil, but also about nuclear fuel.

With the exception of Poland, all major countries operate Russian-designed nuclear reactors.

The fact that a Russian plane brought nuclear fuel to Slovakia at the beginning of March despite the flight ban shows the hardship.

Russia is building new nuclear reactors in Hungary.

How far this will continue under the sanctions regime, which even the Putin-friendly Hungarian head of state Viktor Orbán does not refuse, is an exciting question.

In the short term, the states of Central and Southeastern Europe, such as Germany, must slow down the phase-out of coal-fired power generation.

The new Baltic Pipe gas pipeline from Norway should ease the situation in Poland somewhat next winter, and LNG imports in Poland, the Baltic States and on the Adriatic coast will also help.

In the medium term, however, only more renewables will lead to greater security in the energy supply between the Baltic Sea, Black Sea and Adriatic Sea.

That (with American support) the expansion of nuclear energy is a matter of course there.

The war in Ukraine has far-reaching consequences for its neighbors.

Since the 1990s, however, countries have also shown that they are resilient and able to absorb severe shocks.

As cheap production locations close to the EU market, they could even calculate medium-term opportunities to benefit from a reorganization of the global economy, where production conditions and supply chains are becoming unreliable.

Russia's barbaric attack could accelerate this and also strengthen Central and Southeast Europe's orientation towards the EU as an economic community and community of values.