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Vladimir Litvinenko: Europe is on the verge of another Great Depression

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German Deputy Prime Minister Robert Habeck, following the head of the European Commission Ursula von der Leyen, rejected the proposal of Vladimir Putin, who expressed his readiness to supply gas through the Nord Stream-2 pipeline, in case the pipeline is put into operation. This would guarantee lower gas prices in the EU and save Europeans from a looming energy crisis.

Nevertheless, this was rejected. The German politician reasoned that this decision "will not help get out of the difficult situation, because it will exacerbate Germany's dependence on Russian gas". In addition, he said, "it would be a raising of the white flag in Germany and Europe." Forpost asked Vladimir Litvinenko, a leading energy expert and rector of the St. Petersburg Mining University, to comment on these statements.

Владимир Литвиненко
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Vladimir Litvinenko: I would not like to evaluate these statements for adequacy, let those who elected Mr. Habeck to the Bundestag do so. Nevertheless, given our long cooperation with our partners in the Russian-German Raw Materials Forum, I can't help but share some of the conclusions that come to mind when reading such sayings.

As you know, any process chain begins with the extraction of raw materials and ends with the production of consumer goods. Moreover, the most marginal links in this chain are those connected with deep and complex processing of mineral resources. They allow to produce high quality intermediate or final products. This means that they form most of the added value, i.e. they take most of the income received in the end from the consumer.

Two fundamental factors have underpinned the economic success of northern and central Europe for many decades. Firstly, the availability of technology that makes it possible to create such chains on its territory (except for the first link), to produce unique products and, as a consequence, to sell them on the global market at prices higher than those of competitors. And secondly, access to relatively cheap minerals, which came to the Old World from Russia and allowed to completely level the problem of energy poverty and lack of resources.

This situation led, for example, to German processing or machine-building companies earning more than their counterparts in other parts of the world, forced to buy raw materials at higher prices. Even if their goods were of comparable quality to Germany's and also in high demand. As a result, Europeans, including doctors, teachers, the working class and other social groups, received relatively high incomes, gradually becoming accustomed to a well-fed and prosperous lifestyle.

Today it is becoming increasingly clear that Europe, and the Federal Republic of Germany in particular, has lost one of its two competitive advantages, but is not aware of either the cause or the consequences of what has happened. Although they seem to lie on the surface...

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- In the Western media, the claim prevails that the cause of the current energy crisis is "excessive dependence on Russian energy resources, which Moscow is using as a weapon"

Vladimir Litvinenko: This is not true. Even after U.S. sanctions against Nord Stream-2 were imposed at the end of 2019, Russia did its best to complete this pipeline and ensure reliable supplies of sufficient natural gas to European consumers, as it has done for over half a century. Our contractors, despite enormous pressure from Washington, completed their mission. But Brussels and Berlin refused to certify the project, which provoked the current crisis.

In the fall of 2021, the EU and German governments finally agreed to the US demanding a significant share of the European gas market by artificially forcing Russian gas, a relatively inexpensive commodity, out of the market. Thus, they gave up their national interest as well as one of their competitive advantages. This decision, which violated the sovereign rights of all Europeans, is the reason for the current energy crisis.

But the lack of heat in winter or regular rolling blackouts will not be the only or perhaps even the EU's biggest problem. The fact is that its industry will not be able to maintain the same level of profitability due to the sharp increase in energy prices. And it will become much less competitive compared to, for example, the U.S. industry. After all, natural gas is now about 6 times cheaper on U.S. exchanges than on the Dutch TTF.

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That is, in fact, Washington, having forced its European partners to break off relations with Russia, carried out a brilliant combination, squeezing out a competitor that hindered it in the global market. And the latter, paradoxically, turned out not to mind such a development. As a result, in the near future the top management of the same German enterprises will face a dilemma: either to increase the already considerable gap between the cost of their FMCG goods and competitors' products, which a priori will lead to the loss of some customers, or to sharply reduce expenses. Cut jobs, cancel bonuses, close some promising projects due to lack of funding, and so on.

- What are the consequences for the EU?

Vladimir Litvninenko: However unfortunate it is, both options are likely to lead to the loss by European manufacturers of a certain share of world markets and the inevitable recession of the EU economy. And perhaps even a repeat of the Great Depression that raged in the 1930s, affecting France, Germany and other developed countries, among others.

It is obvious to me that the EU's energy and economic policies today do not stand up to criticism because they consist of a series of flawed decisions. First, the European authorities declared that they would no longer sign long-term contracts for natural gas supplies, because very soon their fuel and energy complex will be based on hydrogen and renewable energy sources. Now they claim that they do not need Russian methane if it comes via Nord Stream-2. Tomorrow they will be explaining to their citizens why their homes and apartments are cold and without electricity, and why prices in stores have skyrocketed.

However, this is not Russia's problem and, as mentioned above, not a consequence of any action on the part of the Kremlin. This is a problem of the inhabitants of the EU member states, artificially created by their own national governments and Brussels. Perhaps EU citizens should ask politicians, whose legitimacy is becoming less and less clear, why they should live in energy poverty and record inflation if the situation can be turned upside down with the snap of a finger. Or, more precisely, by turning a valve that will start the flow of blue fuel from Russia toward the Old World.