The war was prepared long in advance. At the latest since 2005, when Vladimir Putin described the disintegration of the Soviet Union as the “greatest geopolitical catastrophe of the 20th century,” he was anxious to reverse what he saw as a disastrous development. Europe was not prepared for Putin’s war – least of all were the many Putin friends and supporters who, even in the weeks before February 24, 2022, when the new tsar deployed his troops on the border with Ukraine in Bjeloruss, trusted Russian propaganda, which claimed to the last that Russia was after all only engaged in harmless exercises – everything else the regime dismissed as Russophobic propaganda. But the U.S. government knew better: such a deployment always means war. It was also clear to the Americans that the West would have to act if Putin was to be prevented from revising history by means of conquest. But how? NATO deployment on the side of Ukraine was out of the question – that would have meant all-out war, including the nuclear holocaust. But if we did not want to stand idly by – just as the world had accepted Hitler’s lust for conquest until his invasion of Poland – then there was nothing left but an economic blockade (extended by measures against Putins personal collaborators) – i.e. a course of action commonly called “sanctions”.
War – especially in its modern form – is an orgy of destruction of land and people. Sanctions destroy “only” parts of the country, especially the economy. But they have always been a double-edged sword. You can’t tear apart established economic ties and dependencies without also doing considerable damage to yourself. For some time now, the right-wing camp of Marine Le Pen in France, Herbert Kickl in Austria, Matteo Salvini in Italy and, of course, Viktor Orban in Hungary have been voicing vehement protests against those “nonsensical sanctions”. While in our country the prices for energy and basic foodstuffs are skyrocketing and the lack of energy is threatening to bring German industry to its knees resulting in mass unemployment, in Moscow there seems to be hardly any notice of restrictions yet.
What is true is that the West’s sanctions policy has exposed its own economy to the most severe shock since World War II. Replacing fossil fuels with renewables has been on the green agenda for some time since it is the only way we may limit the effects of climate change – but this process takes time: at least two, if not three decades. Now, however, the extrication from Russian energy dependence is taking place overnight, especially since the Russian president sees the interruption of gas supplies as a welcome opportunity to take revenge for the sanctions.
Does this mean the sanctions are wrong because the West is suffering too? No! Apart from open war – a murderous option for all concerned – sanctions are the only means to curb Putin’s expansionist desires. Orban, Le Pen and colleagues hope to ingratiate themselves with the Russian czar and save their own skins. But Neville Chamberlain already failed with this policy vis-à-vis Hitler. In the end, appeasement invariably affects those too who want to ensure for themselves temporary gains.
However, sanctions may or may not be effective. We can speak of effectiveness only if they affect the Russian economy to such an extent that Putin can no longer wage his war because the population starts rebelling. For the time being, this does not seem to happen. To be sure, exports of high technology have been severely curtailed, so the Russian arms industry will soon no longer be capable of producing its high-tech weapons – but this effect will take some time. Conversely, the reduction in gas and oil exports to Europe actually provides Russia with significant benefits as prices for these goods are skyrocketing. Thus, Russian revenues for its greatly reduced energy exports have even increased. So far, the criticism of sanctions is true.
Economic blockade would, however, be really painful if Russia had to forego all or most income from its raw materials exports – as is well known, these account for a full forty percent of the Russian state budget. Since Europe is by far the most important importer of Russian fossil energy, a complete renunciation on our part would entail the collapse of the Russian state budget (because China and India cannot replace the shortfall, at least in the near future). Even under such conditions, the Russians will continue to survive – they often demonstrated their extraordinary stamina in emergency situations – but they will certainly no longer be able to wage a war of expansion.
But Europe too will be hit very hard. In the absence of renewable sources, the fossil supply from non-Russian countries is currently not sufficient to prevent an at least partial collapse of European, and especially German, industries. The transition to a green economy is possible in the long term but being suddenly forced upon us, it threatens us with deindustrialization and the dismantling of our accustomed standard of living – not to mention the ensuing social consequences.
This is the hour when Europe either fails or proves itself. Right-wing outsiders like Le Pen, Kickl, Salvini, Orban, etc. want to pursue their policy of appeasement for and in the interest of Putin – a policy that would not only weaken the Union but disolve it for good (while additionally inciting Putin’s expansionist desires through their compliance). In contrast, the European Commission represents the interests of the whole of Europe against national egoisms. The simplest option, a ban on all imports of raw materials from Russia, is out of the question because it would pose an existential threat to the standard of living all over Europe. On the other hand, Europe can certainly prevent Russia from becoming a beneficiary instead of a victim when sanctions lead to higher prices for oil and gas. A cap on the prices of fossil raw materials is an excellent instrument. After all, the buyers of a commodity can form a cartel just as the sellers have done for decades. Russia has agreed with OPEC to cap production in order to stabilize prices at high levels. After it cut its supplies, prices then skyrocketed. If Europe joins forces with the G7, the leading Western industrial nations, to form a buyers’ cartel, this would be the only way to counteract an excessive price development. Europe would agree to pay Russia a price close to or marginally above the producer price.
Of course, even this approach is not without risk, because Russia does not need to deliver; it could well reduce all exports to Europe to zero. Government spokesman Peskov and Dmitry Medvedev, once a sympathetic prime minister who has turned into Russia’s worst of warmongers, have made that very threat since they know what the European move means for Russia. As already mentioned, it would unhinge the Russian state budget together with Putin’s regime. The payment of pensions and a host of other state services would no longer be guaranteed. The proposed total shutdown of all supplies – already largely realized today, but hardly noticeable for Russia due to exorbitant prices – would be quite possible for the time being, but it could only be sustained for a short while without bankrupting the Russian and causing a system change. It goes without saying that the European Union must demonstrate its solidarity with nation states that are more dependent on gas supplies, such as Austria or the Czech Republic, by temporarily distributing the available gas among all its members.
Cartels of buyers against cartels of sellers have a long history at the national level. Large retail chains in all modern states ensure that producers of basic foodstuffs cannot demand regional monopoly prices. On behalf of consumers, i.e., on behalf of all of us, they buy cheaply across regions, thereby preventing price excesses on the part of sellers (although in their turn they often go too far by minimizing the earnings particularly of small producers).
But price caps carried out by individual states in the interest of their citizens by limiting the cost of energy – especially electricity or gas – are quite different. The individual state has three possible instruments at its disposal: redistribution, public debt or money creation. In the case of redistribution, tax money collected by the state from all citizens is used to help the poorer part of the population in emergency situations. The same goal is targeted with public debt, except that in this case redistribution is spread over time: the coming generation pays for the current one (although it is usually the poorer part of the population whose taxes are used to service the loans of the rich). Money creation by the government (if allowed by existing laws) is the worst of all possibilities. By turning on the printing press, the state helps the poor in the first moment, but the resulting inflation then drives up all prices in the next moment cancelling all previous results. Redistribution is the instrument of choice. It sometimes becomes indispensable for alleviating acute need, but it has its limits, because the government can only redistribute resources actually at its disposal. At present, the pandemic has already brought European governments to the limits of their financial capacity.
And what about the enormous and unjustified profits that some energy producers have made without increasing their own output or costs? Doesn’t this show the whole misery of modern capitalism?
As so often, the popular outrage is based on a misunderstanding. Until recently, i.e. until today’s energy crisis, the regulation that the most expensive energy producer determines the price for all was a sensible and even a downright necessary provision. Those who produced cheaply were rewarded. They could use the extra profit to increase their own production and thus squeeze out the more expensive producers – a huge incentive to invest in wind turbines and solar panels. Siphoning off this extra profit for the purpose of redistribution at a time of immediate energy shortage makes sense if governments want to alleviate immediate need, but the consequence is, of course, that they block investment in cheaper sources of energy.
Here we are talking about national measures within the competence of individual governments. But the acid test required of the European Commission is its joint action against Russian price gouging. The buyers’ cartel and a price cap on Russian energy is the order of the day. Obviously, we are witnessing the end of an era, because the credo that the market regulates everything is being dramatically undermined. First Putin intervened in the market to weaken and divide Europe. Now the European Union, for its part, is forced to regulate the market. It remains to be seen whether the European Commission is up to this vital task.