Russia is robust while Europe is in distress – Jammu Kashmir Latest News | Tourism
By Nilanjan Banik
Last week I had the chance to visit the Baltic region in Europe for a conference. My destination was Lithuania. Once part of the former Soviet bloc, Lithuania still has a large portion of its population that speaks and understands the Russian language. The buildings and architecture are also reminiscent of old Soviet relics, but somehow I feel like the locals didn’t like Russia. They hold Russia responsible for the current economic difficulties their country, alongside other countries in Europe, is facing.
Jobs are hard to find and inflation is skyrocketing. My taxi driver told me, earlier, which cost 1 euro, for a trip from the airport to the hotel now costs around 4 euros. I could get an idea of what he was saying. A quick glance at annual inflation data from the Eurozone confirmed this. The Eurozone includes 19 different countries in Europe, including Lithuania and Finland. On an annual basis, the price of energy, food, alcohol and tobacco increased from 0.9% in June 2021 to 3.7% in June 2022. This represents an increase of almost 4.3 times. The cost of fuel in the petrol pump was 2.02 euros per liter or 190 rupees per litre. But then Lithuania is considered a relatively cheaper country in the Baltic region. I was able to get an idea of it because I had made a stopover in Helsinki, Finland.
But Europeans are not used to so much economic hardship. During my previous visits, I had seen local residents talking proudly about the social security program and how the “welfare state”, i.e. the government, takes good care of their property. -be.
To understand the social protection system in Europe, we will have to go back in history. Shortly after World War II, when Europe was devastated, policy makers in the region wanted to rebuild Europe on the basis of socialist capitalism. The underlying idea is that when the market is at a nascent stage, the state will ensure that a labor market comes into play and that jobs are available. For the elderly and the unemployed, the state will take care of it through a benevolent social security system — paying unemployment benefits and pensions.
The aim is noble, but to make the system effective, the government must ensure that it raises funds through taxation to pay unemployment benefit and pensions for pensioners. Unemployment benefit and pension are expenses for the government, and to pay them, the government must collect taxes.
In times of recession and/or war, when businesses are down, energy prices are high and agricultural food production is sluggish, it is only natural that fundraising taxes is insufficient. Remember, much of the edible oil and wheat imported by Europe and elsewhere in Africa came from Ukraine and Russia. Almost 40% of Europe’s total energy demand (particularly natural gas) was met by the Russians. The war, by imposing sanctions, reduced Russian gas supplies. The substitute is more expensive American energy, which means the European has to pay more.
This means a worsening budget deficit for European governments. A higher budget deficit can be sustained, provided the economy is growing. However, economic growth is in continuous decline in the euro zone. According to the July 2022 estimate, real GDP in the euro area is expected to fall from 5.4% in 2021 to 2.3% in 2022. Public debt as a percentage of GDP fell from 83.8% in 2019 to 96 .4% in the first two quarters of 2022. The higher energy price due to the war is likely to increase the deficit by another 2%.
In fact, apart from the war, the absence of institutional reforms was responsible for a gradual increase in the public deficit in the euro region. In a socialist capitalist structure, wages are protected by unions. This is independent of labor productivity and the ability of companies to generate profits. Added to this is the aging of the European population, which is expected to increase further in the future. To maintain a stable population, 2.1 children would have to be born for every woman in an economy, assuming an average death rate applicable to the world’s population.
On the other hand, the figures for some eurozone economies are much lower: 1.38 for Greece, 1.39 for Spain, 1.41 for Italy and 1.94 for the United Kingdom. For Spain and Greece, the population over 65 will increase from around 17% today to 25% by 2030. The result: Europe has fewer young people to work, to pay for the expensive program social assistance.
A natural suggestion would be to reform labor and pension laws (described as austerity measures) and to relax immigration laws. But, if the poll results are any indication, it seems that voters in Europe don’t like reform, and would rather punish parties that support austerity measures. Over the past two months, Europe has seen an increase in the number of labor unrests, starting with railway workers in France and the UK, energy workers in Norway and workers in the aviation in various low cost airlines in Europe.
A closer look at European democracies suggests that they are run by insiders made up of pensioners, union leaders, public sector workers and big farmers. The outsiders consist of a small number of immigrants, young people and small private entrepreneurs have little say.
In fact, these groups of outsiders are now larger in number and are now facing economic hardship. Income inequality is increasing at an alarming level. Most migrants and even locals have now taken gig-type jobs, such as delivery people, working for food delivery companies Wolt and Bolt. When asked, one of them told me that he earns around 600 euros per month.
Everyone thought and popular media stories in the West say that Russia will suffer because of the sanctions. But data has another story to tell. Inflation has come down in Russia and the Russian ruble has never been stronger. The ruble is appreciating, as Russia now asks its European counterparts and its other main trading partners, India and China, to trade in rubles. This is good news for Mr. Putin. He can support this war.
I met an English diplomat who fled Moscow. He estimated that Russia being one of the largest producers of wheat (about 10% of world production) has enough food to feed its population. China has also been stockpiling its food grains for the past few years. And he hears the Indian government’s decision to restrict foodgrain exports.
And all this is a good measure, and will save Asia and Russia. But only God (and not the United States) can save Europe. With high inflation and low incomes, even businesses will be hard to sustain in Europe. For the first time I saw my flight from Delhi to Helsinki (economy class) serve an all vegetarian meal. For a non vegetarian guy like me, I thought the drink would come as a respite. But now you can only get one small bottle of wine (about 180ml), and the next one you demand, you have to buy. So no luck. On the way back to my return flight from Helsinki to Delhi, I observed some of the fellow travelers say, “Bahut ho geya Europe. Aa Ab Laut Chalen. Really, Mera Bharat Mahan! (API Service)
(The author is Professor, School of Management, Mahindra University).