The war continues and inflation increases

The first casualty of a war is the truth.

Thomas Osborne
Thomas Osborne
31 May 2022 Tuesday 19:22
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The war continues and inflation increases

The first casualty of a war is the truth. Along with the lives that the invaders snatch and the displaced people who flee and take refuge throughout Europe. Ukraine and Russia were the world's breadbaskets, but the crops have failed and the little that can be harvested has no outlet from the ports that Ukraine dominated to export the wheat and grain that came to us from the Black Sea.

The ECB attributes to the war a significant part of the inflation in the euro zone and the high costs of energy, which have tripled in a few months. The Bundesbank asks the ECB to increase interest rates, and it is not by chance that the Euribor, after six years in negative, is now positive and rises to 0.34%. Another consequence of the fact that as of June 30, the ECB will stop financing liquidity auctions for banks at 0%. More expensive money for SMEs and mortgages. Now it is advisable to close what is borrowed at a fixed rate.

The global index of food increased by 20% and the scarcity causes famines in Africa. India has banned wheat crops from being exported for fear of another famine. In the United States, along the so-called grain corridor, farmland is auctioned off. They are not bought by farmers, but by some investors who sell their shares on Wall Street and hope for higher returns on the crops.

The companies dedicated to the shale deposits extracted gas and oil in the United States. Now they swim in abundance. With the techniques of horizontal drilling and contaminating the water tables, they have turned the country into the largest producer of gas and oil in the world. Most of them went bankrupt, because they were financed with low-quality debt (junk bonds) and little capital. But with the war they have reopened the deposits and they have an unexpected tsunami of liquidity.

Ships with liquefied gas arrive in Europe and the EU is looking for platforms and new facilities in the ports of Bremen and Hamburg to gas these supplies, but they are more expensive than oil from the Urals, which Russia reserves for countries it considers friends. India buys more than 350,000 barrels a day at discounts that EU countries do not have.

And now the positive reaction of the European Commission. It is an ambitious plan to dispense with gas from Russia. First massive investments for renewable energies. Joint purchases of gases on international markets and unusual financing for infrastructure, which will set aside Hungary's veto to dispense with Russian oil. Russian gas imports have been reduced from 40% (year 2021) to 26% in April this year. Launch of the so-called green pact, which consists of saving energy and consuming less. Massive investments for green hydrogen projects and reaching 2030 without relying on fossil fuels. It will benefit the environment and consumers.