An optimistic view of the economic downturn due to the energy crisis and price boom Adam Tooze, Professor of Economic History, Director of the European Institute at Columbia University in New York, reports this to K.who refuses to accept the crisis term. On the contrary, he says he is committed to estimating temporary inflation, predicting price de-escalation within 12 months. He even sees the benefit in accelerating the transition to energy and eventually turning away “unreliable and disgusting” fossil fuel suppliers.

Moreover, he is not worried about a new euro zone debt adventure, sticking to a good scenario despite the political developments in Italy. In his confessions, he refers to the markets as allies who have not yet been overcome by panic. However, he appears to be worried about Greece, which is forced to respond to emergency financial needs despite its low debt. That is why he pays due attention to the prompt resolution of any outstanding issues in the field of reforms. But also in seizing a great opportunity: Greece will become the center of Europe’s transition to renewable energy.

– A crisis is a moment of fundamental challenge, a moment of decision. Geopolitically, we are clearly facing a crisis as a result of Russian aggression in Ukraine. More generally, however, the world economy is not in crisis. The strength of the recovery in 2021 and early 2022 has been significant. We now face the prospect of a mild recession. Let’s hope that the turmoil in global energy markets, especially the natural gas market, will force key consumers, especially Europe, to diversify their sources of supply and accelerate the transition to energy sources.

– The way out of the energy crisis lies in short-term economic measures, which involve targeted price increases for consumers who can afford it, and, in extreme cases, rationing. In the medium term, Europe should seek to diversify its sources of supply, and in the longer term, it should promote a switch to renewable energy sources to reduce dependence on unreliable and disgusting fossil fuel suppliers. It would be an exaggeration to talk about an inflationary crisis. Europe is facing a price shock, mainly due to energy and food. This shock is likely to soften over the next 12 months. A looming recession will further reduce inflationary pressures. I remain committed to the assessment that the problem will be temporary. I expect the inflationary boom to slow down significantly by 2023.

The prospects for Greece should cause concern. To increase growth in the long term, a reform agenda must be implemented. Much remains to be done.

Whether fiscal stress becomes a real problem in Europe depends on how the ECB is or is not allowed to manage the bond markets. Given Europe’s overall financial situation, there is no immediate cause for concern. Obviously, there are some individual countries that are in a precarious position. Italy is a strategic case. But with sound policies in national capitals, concerted action at the European level, and clear leadership from the ECB, there really is no reason to fear a repeat of the eurozone crisis.

“Obviously the markets are nervous and we have seen how quickly they react to bad news by widening spreads. But so far we do not see any panic. Markets continue to expect a significant slowdown in inflation next year. They do not take into account the eurozone debt crisis. After many years of experience, it is de facto assumed that any pressure that arises can and will be overcome. It seems realistic.

– Of course. But the Italian right now does not have the Eurosceptic mood that it had a few years ago. In 2018, we saw the Italian and European political system absorb a real populist outbreak. The powers of the Italian president, the survival instinct of the Italian political class, and the diplomacy of the Commission worked together to defuse the situation. In the two right-wing parties – Lega and Forza Italia – there is a significant weight of particularly mainstream business opinion that demands to be heard and does not support confrontation. Two circumstances may refute this relatively optimistic assessment. Firstly, a new crisis – ie. an increase in the number of refugees – and a corresponding failure of the EU. act in solidarity with Italy. Secondly, the defiantly tough position of other European countries. Assistance from Berlin was a key element of stabilization in 2018. I would like to hope to see him again.

– For Greece, the prospects should be alarming. Highly dependent on energy imports, inflation is on the rise and the rest of the European economy is heading for a slowdown in the second half of 2022 and into 2023. at the same time, from 2020, it is called upon to respond to the emergency needs of the moment. To increase growth rates in the long term, it is necessary to implement a reform program that has been widely known and discussed for more than a decade. Much remains to be done. But the top priority in a world where inflation hovers above 10% should be to protect the living standards of the poorest. After all, 30% of the population is still at risk of poverty. Protecting these people should be a key short-term priority. In the long term, Greek policy should strive to assume a more important role as the center of Europe’s transition to renewable energy.

His research

Professor Adam Tooze teaches and researches 20th century and modern history, focusing on its economic aspect, expanding his research from Europe to the other side of the Atlantic. His latest book is The Political Economy of Collapse. Financial crises that changed the world.