The West is united against Russia. As the price goes up, will it hold its nerves?

“I just wish that you do not lose this sense of unity,” he said, calling for maximum pressure on Moscow.

Three months after Russia’s invasion of Ukraine, leaders in Europe and the United States have vowed to stick to unprecedented sanctions in an effort to force President Vladimir Putin to withdraw his troops.

“I’m very worried about what a recession in Europe will do to Europeans and their intentions to increase sanctions,” Jason Farman, a Harvard professor who previously served as President Barack Obama’s top economic adviser, told CNN Business.

Already, the United Front in Europe has begun to crack. Hungary’s Victor Urban, who was not present in Davos, has led dissent in blocking EU plans to impose an oil embargo on Russia, a bid to cut off a major source of revenue for Moscow. In the end, the goal of getting rid of Russian gas may prove even more difficult.
The United States is under President Joe Biden and the Democrats There is a lot of pressure to prove that they are serious about fighting inflation before the midterm elections in November, although this is largely due to factors such as supply chain snarls and high consumer demand, which are beyond their control.

This could complicate efforts to maintain pressure on Russia, Despite the warnings of billionaire George Soros and others, appeasing Putin would have catastrophic consequences.

Participants in a panel session on the third day of the World Economic Forum on May 25 in Davos, Switzerland.

Fuel and food prices have risen

In Davos, government and business leaders insisted they could not surrender to Putin. They agreed that the response to its acquisition of Crimea in 2014, as well as the response to the poisoning of Sergei and Yulia Skripal in Salisbury, England in 2018, was far-sighted.

And the West’s historic sanctions against Russia this year may not be enough. Russia’s economy has been in turmoil, but has held up well as expected, somewhat strengthened by strong oil and gas revenues. It allowed the central bank to cut interest rates on Thursday.

“We must stop compromising,” Slovak Prime Minister Eduard Hager said passionately during the panel discussion. Compromising with Putin led to “an aggressive war”, he continued.

Speaking to dinner guests, Soros warned that an invasion of Ukraine could trigger a third world war, saying that Putin would have to be defeated “as soon as possible” if the world wanted to preserve civilization.

But the economic context could make life difficult for politicians back in the country. Annual Of the 19 countries that use the euro, inflation reached 7.4% in April, the highest ever. In the United States, inflation stood at 8.3%, and in the United Kingdom it stood at 9%.

A big factor is energy consumption. They have already grown because of the post-epidemic imbalance of supply and demand, but have been further fueled by European efforts to reduce reliance on Russian power.

An oil embargo has been imposed by landlocked states such as Hungary and the Czech Republic, which say it will take years for them to relocate to other suppliers or energy sources. That’s it But it is expected to agree next week.

“The economic situation is certainly challenging. I don’t think it will affect the consensus on oil,” said Mujtaba Rahman, managing director of Eurasia Group Europe, a political risk adviser.

Still, it will have consequences. Fears of a fuel shortage have already pushed up prices dramatically. In the United States, the average price of a gallon of regular gasoline reached a record $ 4.60 on Thursday. The situation is worse in Europe. Recent data shows that drivers in the United Kingdom pay $ 8.06 per gallon and in Germany $ 8.43 per gallon.

At the same time, food prices have skyrocketed as the war has disrupted exports of key commodities such as wheat and sunflower oil, and some countries, such as India, have imposed export bans to protect domestic supplies. In April, food prices in Germany rose 8.6% year-on-year.

George Thiel, president of Germany’s Federal Statistical Office, said earlier this month that “the effects of the war in Ukraine are becoming more visible here.”

European Commission President Ursula von der Leyen noted this week that “this is a fragile country with a weak population the most affected.” He added that bread prices in Lebanon had risen by 70% and food shipments from Odessa, Ukraine, had not been able to reach Somalia, which is battling a devastating drought. Protests have erupted in Peru over rising prices, and in Sri Lanka the prime minister has been ousted.

However, even in Europe and the United States, low-income families are increasingly forced to choose between “hot and hot”, which is responsible for a large proportion of their budgets. Economists are concerned that spending cuts could lead to a recession, especially as central banks raise interest rates to control inflation.

“There are real risks for many people,” Gabriella Butcher, Oxfam International’s executive director, told CNN Business. Even in the “rich world,” he added, “people are struggling to meet their basic needs right now.”

The British government acknowledged the problem on Thursday when it announced a $ 6.3 billion windfall tax on oil companies to pay people struggling with energy bills.

The future of Western solidarity

American and European officials and top corporate officials say Ukraine’s victory is crucial. The brutal war and humanitarian crisis must end, and democratic values ​​must prevail in what German Chancellor Olaf Schulz calls a “turning point” for the world.

David Rubenstein, billionaire founder of the Carlyle Group, told CNN Business: “It’s hard to see a problem that unites people in the West like this one.” “I don’t think the growing growth that can be attributed to inflation is going to change anyone’s outlook.”

US officials also see the need to side with Putin, who they say is closely monitoring the situation, to reduce the ambitions of Chinese President Xi Jinping.

“Prevention is a key issue here,” said Michael McCall, a top Republican in the House Foreign Affairs Committee. “As Shi sees what is happening in Ukraine, [he’s asking,] ‘Is it worth it?’ And we have to convince him that this is not the case. “

However, balancing politics and economic concerns will not be easy. Scholes acknowledges that “politicians have an important role to play in awakening different parts of their mandate from the public.

Rahman said it could be a major problem in the face of Russia’s major tensions. It could call for a complete ban on Russian natural gas, which accounted for 45% of Europe’s supplies last year. Lots of travel by pipeline, which makes it more difficult to find alternatives.

It is not on the table right now, although Scholes said Germany is working “flat out” to end its dependence on Russian gas as soon as possible. But if it comes under serious discussion, it will be a tactical sale, more than what the West has proposed so far.

Companies, while telegraphing strong support for Ukraine, are also concerned about the growing pressure on their businesses. Herbert Dice, its CEO Volkswagen (VLKAF)CNN told Business that the rising cost of raw materials and the full impact of inflation will not be clear for another six or 12 months, creating a “really difficult” operating environment.

“We should achieve something with sanctions,” he said. “So far, we’re basically moving from growth to growth and we have no choice. So I think sanctions, yes, but how are we going to end it?”

Henry Kissinger, a former U.S. secretary of state, reacted earlier this week when he suggested that Ukraine should agree to give up Putin and most of Crimea to Putin.

“Negotiations need to start in the next two months so that it can create unrest and tension that is not easy to overcome,” Kissinger said. “Ideally, the dividing line should return to normal.”

Zelensky compared Kissinger’s remarks to the appeasement of Nazi Germany in 1938.

“I don’t want to hear the word ‘satisfaction’ anymore,” European Parliament President Roberta Metsola said on Wednesday.

Nevertheless, a weak economy and high inflation could weigh on politicians returning to the country, prompting a warning from NATO Secretary-General Jens Stoltenberg.

“Freedom is more important than free trade,” Stoltenberg told the Davos crowd. “The protection of our values ​​is more important than the gain.”

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