- “Putin Has Pushed Europe Into An Inflationary Depression And Currency Collapse”
by Michael Every of Rabobank, https://www.zerohedge.com/
“Truss-itory” Inflation and Soviet Planning
With US markets closed yesterday for Labor Day all the action was in Europe – and given that Nord Stream 1 had been shuttered and the European Commission had floated war economy style regulations, and Russia then made clear that unless sanctions on it are dropped, no gas will *ever* flow through Nord Stream 1 again, it was no wonder Eurostoxx were down and EUR dipped below 0.99 for the first time in 20 years, as the Dollar wrecking ball momentum continued. (Forcing China to slash banks’ FX reserve requirement ratios from 8% to 6%, which won’t do anything to stop the ongoing slide in CNY for long, sitting at 6.9340 at time of writing this morning in Asia.)
Benchmark Dutch TTF gas was up hugely at first before closing ‘only’ 17% higher on open recognition that while much bad news is now priced in, Europe is really in the economic war I have been warning of.
As pointed out on Twitter, Russia’s move is so blatant there is no way Europe can fudge an agreement with it the way some might have over ‘technical issues’ with the pipeline. (As was Russian President Putin also approving a new foreign policy doctrine backing a “Russian world” covering all Russian speakers, including some in the EU, while building up relations with all the countries the USSR was friendly with to boot.) This is a gun to the EU’s head. So was OPEC+ agreeing on a token 100,000 barrel a day cut to production. So was Iran saying no to the nuclear deal unless the IAEA backs off from investigating the serious breaches of the last nuclear deal it didn’t stick to.
Assuming Europe cannot retreat, that means a severe recession with very high inflation, and if anything were to happen to gas flows via Ukraine, which could easily occur, Europe would need to make swinging cuts to demand in order to avoid unplanned ‘gas outs’. German Economy Minister Habeck just said: “Expect the worst.” As mentioned yesterday, existential choices now need to be made, because there may not enough energy to go round. The choices are obviously unappetising.