The Daily - How Europe’s Energy Crisis Exposed Old Fault Lines and New Anxieties

Episode Date: October 25, 2022

In the early days of its war on Ukraine, Russia cut off gas supplied to most of Europe, plunging the continent into the most severe energy crisis in decades.Soaring prices have put some European leaders on the defensive over their support of Ukraine in the war as they navigate economic crises and bubbling unrest at home.Guest: Matina Stevis-Gridneff, the Brussels bureau chief for The New York Times.Background reading: European countries are facing dwindling supplies of Russian natural gas. The scarcity has distorted the market, driving gas prices to historic highs and pulling up the price of electricity.The downfall of Britain’s prime minister sent perhaps the clearest signal yet that political peril awaits those who fail to address inflation and the erosion of living standards.For more information on today’s episode, visit nytimes.com/thedaily. Transcripts of each episode will be made available by the next workday. 

From The New York Times, I'm Sabrina Tavernisi, and this is The Daily. In the early days of the war in Ukraine, Russia cut off gas supplies to most of Europe, plunging the continent into the most severe energy crisis it had seen in decades. Today, I talk to my colleague Matina Stevis-Gridnev, about the resulting economic pain and why European leaders are now so afraid of it. It's Tuesday, October 25th. Matina, hello. Hi, Sabrina.

Nice to see you. And you. Can you describe exactly what's happening right now with energy and energy prices in Europe? Well, I guess the simple answer is they're through the roof. Time is running out for Europe to contain soaring natural gas prices. And because energy just goes into pretty much everything we consume, it's really starting to cause economic chaos. Prices are soaring and major economies like Germany

are considering rationing when the cold weather hits. When I say energy prices are up, I mean that they're really up by as much as like 500% in some places. Wow, 500%? Yeah, it's a lot. The lights went out early on Friday as one of Paris' most famous landmarks, the Eiffel Tower. The iconic tower shut off its dazzling lights

as part of an initiative to save electricity. Across Europe, governments are taking action to switch the lights off in public buildings and even landmarks. People are being urged to cut their energy use by showering less and turning off the lights. And there's all sorts of public messaging going on about turning down your heater. They've literally turned down the temperature here at the EU summit buildings. All EU member states are being asked to make compulsory reductions in their energy consumption.

European leaders are passing on the message that we all have to do our bit and just be tougher so we use less energy. European factories have been shutting down furnaces and keeping production to a minimum. With no end in sight for Europe's power problems, could a phase-out of factories be on the cards? So you see the effects of the energy crisis at the industry level.

People across Europe are struggling to pay soaring energy bills. But you also see it on an individual level, with bills that have become unaffordable for a lot of people. In living memory, it's hard to remember such a sharp rise in energy costs. It's really a massive burden on European economies right now. And it's putting everyone under a lot of stress. Like, my energy bill here in Belgium has tripled since last year. I was paying about 240 euros, and now I have to pay more than 700 euros a month.

So it's a big change. I mean, we're very fortunate that we can afford it. But you can imagine that people with unstable jobs or single-income families or precarious incomes, they can't afford this kind of cost. And what's driving all of this? Like, why are energy prices so high right now? I mean, fundamentally, it all goes back to Russia's invasion of Ukraine and the European Union's decision to support Ukraine and start severing relations with Russia. In particular, wean itself off of Russian energy supplies, such as natural gas. That has turned out to be very difficult and very painful. Right. I mean, Europe, as we know, was pretty addicted to Russian energy.

We talked about that on the show before. But remind us exactly sort of how that worked. You know, how the war plunged Europe's energy market into so much chaos and created so much pain. Well, going back to the beginning of the war after the Russian invasion of Ukraine, the European Union started hitting Russia with sanctions and also made a pledge for itself, precisely as you said, to start limiting its reliance on Russian energy. They sort of said, we accept that we've been overly reliant on Russian oil and gas,

and we're going to start to do something about this. But they didn't even get a chance to really do anything about it because Russia decided to turn off the spigot. Just as an example, European Union imports of Russian natural gas were about 40% of all the natural gas it imported last year. And this year it's 7% at this point. And that's not because the EU did anything really other than support Ukraine.

It's that the Kremlin decided to punish Europe by sort of weaponizing its gas. sort of weaponizing its gas. And that is just a huge change. I mean, a massive collapse in something that had been pretty steadfast for many years. So what did the EU do? I mean, how did they try to stave off what presumably to them at the time looked like a looming disaster. Absolutely. So this development happened in the warmer months of the year, which was sort of a blessing. But one thing the European Union did across the board was really focus on demand. The one thing they could control, which was how much energy they spent. But the most immediate things they've done other than cut demand and trying to save energy, has been buying up lots and lots of natural gas to fill up their storage facilities and just make sure they can get through this winter without disruptions. And already they've hiked the input

from Norway and the United States and Algeria, which are traditional suppliers of natural gas, especially liquefied natural gas to the European Union. Some European countries are pursuing deals with sub-Saharan African countries like Mozambique and Senegal. They're also looking to the east in places such as Azerbaijan. And they've done pretty well at that. Currently, EU storage facilities are filled up to 90% or more. So they have secured continued electricity production for their countries through this winter, provided this winter is not extraordinarily cold. Okay, so just kind of going back through this here, you have the war in Ukraine, Russia turns off the spigot.

of going back through this here. You have the war in Ukraine, Russia turns off the spigot. This is just a massive heart attack in Europe because that's most of Europe's gas, and they go scrambling to solve the problem. And they eventually do solve it by kind of band-aiding together, you know, this new set of supplies. So problem solved then, right? Well, for now, for this winter. Yeah, it made up for the shortfall and they have sufficient electricity fuel to go through the next few months, certainly until the springtime. But they were sort of competing against each other and outbidding each other to fill up their natural gas storages. They being all these European countries. That's right. And that sent an already very, very high price, even higher.

And Germany is really being singled out as a prime offender in this because they had the most reliance on Russian gas, but they're also the richest. So they didn't really sort of stop and wait to look at what the price was, whatever the price was, they were willing to pay it so long as they could fill up their natural gas storage facilities. And that did lead them to create problems for smaller and poorer European Union countries that couldn't afford the prices at the level that they were being set. So, you know, yes, the good news is that for the European Union countries, the scrambling worked, cutting demand, buying up whatever they could, filling up those storage facilities and looking for alternative sources.

All of that has been working. But the bad news is that it's come at a huge uptick in energy prices. And that's started to expose divisions among EU countries. Because they were bidding against each other, like kind of acting at cross purposes. That's it. They didn't do it together. And the divisions are exactly what Russia revels in. Putin basically celebrates the European front, which is trying to stick together despite economic adversity to support Ukraine, splintering. He went on an economics and business conference recently and was sort of quite sort of sarcastic about it. Oh, are you struggling over there? Well, you say the word and I'll turn the spigot back on. And of course, on Russian media, there's all these stories about how people in the European Union are really struggling, that EU sanctions are hurting Europeans more than they're hurting Russians.

So you can see that this is something that really plays into the Russian playbook. They want to see an exhaustion of the support for Ukraine, a fatigue with the war, and especially a fatigue with paying the economic costs of supporting Ukraine. Right. Putin is basically waiting for Europe to get tired of the situation, get tired of this war, and want to go back to their own economies and back to their own problems and stop supporting Ukraine. into growing prices for goods, fueling record inflation around the European Union. Inflation in the EU is around 10, 11%. Where I am in Belgium, it's 12%, in fact. Wow, 12%. So it's significantly higher than what you guys have in the US, which is already pretty high,

right? I think inflation in the US is 8%. And so where does that leave European leaders? I think European leaders realize that we're at a tipping point where things are about to get a lot worse. Maybe the sort of total nightmare scenario of widespread power outages in Europe has been averted. But the price of fixing that problem has been huge. And they're also starting to worry about their own governments, their own political survival. And why would they worry about that? I mean, maybe that seems like a dumb question, but how does this relate to that? Well, it isn't a dumb question at all, because when economic pain becomes this acute, when you have a real cost of living crisis that affects multiple layers of society and industry,

people respond in unpredictable ways. It becomes a major problem for politicians, especially if they don't have good policies in place to deal with the problem. And you see the impact of that on the street, in polling numbers. It becomes a threat to the sustainability of governments. We'll be right back. Matina, how much are we actually starting to see political upheaval in Europe because of these rising energy prices. Well, Sabrina, I do think it's starting to bubble.

Most European nations are facing sharply rising inflation. The latest IMF data presents a grim picture. I mean, across Europe over the last several weeks, we're seeing demonstrations with thousands of people taking to the streets. More than 100,000 people nationwide answered a call from left-wing parties. In France, for example, some of the major labor unions there organized a march in Paris last week to demand wage increases and higher benefits. In the city of Nantes, hospital staff, social educators, students and workers from other sectors are

also demonstrating. Or in Germany. We're no longer up to our necks in water. We're in the process of sinking. We can't go on. We need help. Protesters rallied there as well, decrying rising energy prices and living expenses. And in a really interesting example...

Under the banner of Czech Republic First... In the Czech Republic, 70,000 people last month came out to voice their opposition to the European Union and NATO. They called for the ending of sanctions against Russia and to instead establish a new gas supply deal. Protesters also saying that the Czech Republic should be militarily neutral. And there they linked their economic problems directly to the EU sanctions against Russia and EU support for Ukraine. So I think what's important to note here is that the cost of living crisis that we're living through right now is worse than what we've had in a really, really long time.

And that kind of economic pain can have political consequences. What do you mean, political consequences? Well, the majority of people are simply demanding better policies from their governments to help them weather the cost of living crisis that is now out of control. and certainly sort of taken advantage of by fringe groups on the far right, and we're certainly seeing it also on the far left, that are finding an opportunity in this cost-of-living crisis to basically parrot Russian propaganda, saying, for example, that the EU has sanctioned Russian gas, which is not true. It's Russia that chose to turn off the tap and

cut gas supplies to Europe. Sanctions have so far quite explicitly exempted Russian gas precisely because European Union countries need it so much. But fundamentally, what those fringe groups are arguing is that what's to blame for the cost of living crisis is basically Europe's support of Ukraine. If Europe would just sort of capitulate to Russia's advance in Ukraine and its invasion, things wouldn't be this bad. So it's not just sort of an abstract thing they're talking about. It's a real fear. I mean, that this economic anxiety could inject a lot of uncertainty into their political

systems and be fodder for fringe and extreme parties who are trying to make arguments against them. I mean, that's absolutely right. In recent European history, we have seen a pretty direct link between economic anxiety and crises and openings for populism, especially from the right, but also occasionally from the left. For example, we saw this at the back of the Eurozone crisis and Greece's crisis in 2011 to 2015. Then we saw it after that

in the Yellow Vest movement in France. And with every crisis, these movements and these parties just gain a little more popularity. They gain bigger audiences. And I think that history is front and center as EU leaders try to sort of form some kind of consensus and stay away of people's frustrations that's snowballing toward them, to bring down the cost of living, but also to sort of take this fuel away from populist parties. So what are these leaders then doing to avert that? How are they taking action? Well, so far, they've thrown money

at the problem, like a lot of money, hundreds of billions of euros in subsidies, nationalizing energy companies, spending a lot of cash out of their budgets in order to try and support households and businesses. These policies are not sustainable, not least because they're extremely, extremely expensive. So they need to do something a bit more fundamental to break this loop of energy prices. They know that they have to agree on some stronger measures than just buying up all the gas they can find and just spending huge sums of money subsidizing people's bills. Just last week, EU leaders met here in Brussels to put in place some of those bigger measures, like buying up gas together for the next winter, and even capping the price they're prepared to pay for natural gas.

And the clock's ticking because some countries face elections next year. And they're trying to outrun this problem so they don't enter these elections on a really bad economic situation. don't enter these elections on a really bad economic situation. And I think European leaders are really motivated to keep a united front supporting Ukraine. But to do that, they've got to keep their people behind them. I mean, at some point, self-preservation presumably kicks in, right? And for some Europeans, it's becoming a real question about why their governments are continuing to support Ukraine in this very expensive war. Well, I guess that's ultimately the question. And to be fair, European public opinion seems to largely be supportive of staying behind Ukraine. For example, polling in Germany last month showed that 70% of the population is still in favor of strongly supporting Ukraine despite higher energy prices.

But the truth is, the longer this problem festers, and unless European leaders get some strong policies in place, strong policies in place, the more this kind of support for Ukraine will wane, in particular in countries that are maybe poorer or have closer traditional ties to Russia. And as the costs rise, you can't count on people's resilience and support forever. Matina, thank you thank you sabrina we'll be right back We'll be right back. Here's what else you should know today. I am humbled and honored to have the support of my parliamentary colleagues and to be elected as leader of the Conservative and Unionist Party. Rishi Sunak will become Prime Minister of the United Kingdom after prevailing in a chaotic race for Britain's Conservative Party leadership. Sunak, who is 42 and the son of Indian immigrants, will be Britain's

third leader in seven weeks and is the first Prime Minister of colour in British history. The United Kingdom is a great country, but there is no doubt we face a profound economic challenge. There is no doubt we face a profound economic challenge. He replaces Liz Truss, who resigned under pressure last week after her economic agenda caused turmoil. We now need stability and unity. And I will make it my utmost priority to bring our party and our country together. Sunak now faces soaring inflation, but also steep hurdles in unifying his own party. The conservatives lag behind the opposition Labor Party by more than 30 percentage points in the polls.

And U.S. students experienced major setbacks in both math and reading during the COVID pandemic, according to an authoritative national exam. The declines happened in nearly every state and across almost all demographic groups. The results were particularly devastating in math. Just 26% of eighth graders were proficient, down from 34% in 2019. It was the steepest drop since the test was first administered in the early 1990s. Today's episode was produced by Muj Zaydi and Diana Nguyen.

It was edited by Mark George, with help from Patricia Willans. Contains original music by Dan Powell, Marian Lozano, and Rowan DeMisto, and was engineered by Chris Wood. Our theme music is by Jim Brunberg and Ben Landsberg of Wonderly. That's it for The Daily. I'm Sabrina Tavernisi. We'll see you tomorrow.