The economic fallout of the Russia-Ukraine war in Europe, especially in the Scandinavian and Baltic countries seems to be deepening. With Russia closing the Nord Stream I gas line, which supplies gas directly to Germany, the fears of energy crunch in the winter, of rising electricity prices have risen. Swedish Prime Minister Magdalena Andersson said that the government will give billions of dollars in guarantee to energy companies to manage the price rise and that it is the only way out. Ms Andersson said that both the Nordic and Baltic countries faced a crisis in electricity supply and rising energy bills, pointing to a “war winter”. While Russia has blamed the economic sanctions as coming in the way of routine maintenance issues of the pipeline, European countries believe that Russia is using oil as a weapon. Ms Andersson said, “Russia’s energy war is having serious consequences for Europe and Swedish households and companies, especially southern Sweden, which is dependent on electricity price in Germany, which in turn is very dependent on gas.” She elaborated on the issue: “This threatens our financial stability. If we don’t act soon it could lead to serious disruptions in the Nordics and Baltics. In the worst-case scenario, we could fall into a financial crisis.” Swedish Finance Minister Mikael Damberg said that the credit guarantees proposal was shared with other parliamentary parties and the speaker. He also said that $8.36 billion would be made available to help consumers face the burden of rising electricity bills. Sweden is going through an economic crisis with inflation at the highest in 30 years, and the central bank had already raised the interest rate twice so far and it is expected to raise it further. That would dampen economic growth as the country goes into an election on September 11.

The stress of the war in Ukraine on Eurozone can been seen in the inflation rate in April rising to 7.5 per cent in April compared to 7.4 in March, and this is largely due to higher energy prices directly related to Russian supplies of gas to German. The energy prices have jumped 38 per cent in the Eurozone. The European economy was recovering from the impact of two years of Covid-19 pandemic when war broke out in Ukraine and threatened the prospects of economic recovery on the continent. European countries have not so far put a stop to oil supplies from Europe, and the closure of the Russian gas pipeline to Germany was mainly for maintenance purposes, to plug the leaks in the turbines. But many experts in Europe feel that if the war continues in Ukraine, European governments will not be able to avoid tightening economic sanctions against Russia, including oil and gas supplies from that country. This could raise the electricity prices and affect households as much as the energy companies. The war is affecting Europe’s economic recovery by creating supply chain disruptions, especially in the energy sector.

Europe and America have been going through an economic downturn even before 2019. Covid-19 pandemic and the Ukraine war have only made it worse. The problems ailing the economy go deeper as we have seen the economic crises that have hit Greece, Italy, and even France in the last decade. An end to the Ukraine war will serve as an economic booster because of the reconstruction activity that awaits in war-ravaged Ukraine.

But the problem seems to be the deep economic disconnect between Europe and the United States. The US economy has not been affected by the war in Ukraine the way Europe has been. The US, as a matter of fact, has been selling arms worth billions of dollars to Ukraine, which is an indirect help to the US economy. The economic equations of the Ukraine war have been quite complicated, and the political leaders on either side of the Atlantic have little understanding of the issues.