Weaning off Russian gas would weigh heavily on European economy, says IMF official

"Over the next six months, Europe can live with a total shutdown," the German head of the International Monetary Fund said in an interview with AFP on the sidelines of the spring meetings in Washington.

In summer, the needs are lower and European countries could also draw on their stocks.

However, reducing inventories to critical levels would put strong upward pressure on prices which are already at record highs, the official warned.

“On the other hand, if the interruption were to last until winter, or even over a longer period, this would have significant (negative) effects” on the European economy, continued Mr. Kammer, pointing to the seriousness risk of cuts during the winter.

Russia is Europe's largest natural gas supplier.

The interruption of gas imports, in retaliation for the Russian invasion of Ukraine, is one of the options discussed within Western countries to put pressure on Moscow to cease hostilities.

But Russia could itself decide to cut off the tap, putting supplies in Europe at risk.

The IMF has calculated that a total disruption of Russian gas and oil supplies could potentially cost the European Union economy 3%.

The estimate of the impact remains subject to great uncertainty since we cannot, for example, predict today whether the next winter will be long and harsh.

But faced with the potential effect on the economy, Alfred Kammer recommends alternative emergency measures.

"There is no single option that is likely to have a big impact" on its own, he admits.

"But the accumulation of many small measures will have a greater impact."

Brendan Smialowski AFP

One of the measures is the search for alternative sources of supply and the countries have already started to do this by turning to Algeria or Norway, he underlines.

Consumers also have an important role to play in participating in the collective effort.

Governments can raise awareness through "information campaigns to reduce energy consumption".

Consumer

"The consumer can act now," insists the head of the institution.

"And reducing energy consumption makes it possible to store more gas (...) which will make it possible to attenuate the effects of subsequent cuts" potential.

To accelerate their energy transition, the most vulnerable populations could be offered subsidies, he also suggests.

All these measures have a "modest" effect if taken independently of each other.

But added together, there will be an accumulation effect.

Although the war in Ukraine has greatly slowed growth in Europe, Alfred Kammer believes that "the recovery will not be derailed".

"We don't see a recession," he added.

The major Eurozone economies, with the exception of Spain, will be "weak in 2022" and a quarter or two of near-zero growth or even a technical recession with two negative quarters are not excluded.

But the IMF expects these economies to recover in the second half of this year.

"A boon"

At the same time, the energy challenge posed by the Russian offensive, European countries are faced with the refugee crisis which is weakening the budgets of certain economies such as that of Poland which has taken in many Ukrainians.

The challenge is that a maximum of the five million people who fled the conflict can return to Ukraine to help rebuild the country.

"Some of these refugees will stay in Europe, I'm sure," continues Alfred Kammer.

But this is not a bad thing, it is even "a boon" if integration is successful, according to him, for countries faced with the aging of their population and the lack of manpower.

“However, there should not be too many of them” because that would then compromise the recovery of Ukraine.

© 2022 AFP