Peter Spiegel: European downturn in war’s wake will be mild

Well-known Financial Times editor and analyst Peter Spiegel cites Europe’s resilience in the face of the energy crisis, in an interview with “To Vima”.

The veteran British journalist said a normalization of supply chains after the pandemic shocks and, up-until-now experience, lead him to believe that if an economic downturn affects Europe in 2023, then it will be “shallow and short” – although excluding his native UK from this reasoning, due to “Brexit”.

VIMA: First of all do you see an end to this war? What will need to happen for a cease-fire and peace negotiations to begin, as there appears to be no clear winner on the battlefield?

Peter Spiegel: Most US officials I speak to have no real idea of how the war will end, and pressure on Zelenskyy to engage in negotiations has dissipated over the last two or three months. There are some in the Pentagon, most notably General Mark Milley, the chairman of the Joint Chiefs of Staff, who have spoken openly about trying to end the conflict through negotiations. But that talk has died out in the new year, and I don’t foresee any talks in the near term. All signs point to a long, protracted conflict and I don’t believe peace negotiations will start until something more decisive happens on the battlefield.

V: The war created a new energy crisis and drove inflation to levels not seen in decades. Europe in particular is the hardest hit because of its energy dependence on Russia. Do you think the European governments and the ECB are dealing with the crisis in the best way? Is there hope for Europe to escape recession in 2023?

PS: I think most policymakers and analysts have been surprised with how resilient Europe has been in the face of an unprecedented energy crisis. Many regions have been helped by an unseasonably warm winter. But European policymakers have been able to find alternate sources of natural gas and have imposed conservation measures that have kept energy prices from skyrocketing. I think Europe has a good chance of escaping a recession — or, if there is one, it is likely to be shallow and short. Some countries, like the UK, may be harder hit because of specific challenges like Brexit, but I expect only a mild downturn for most of Europe. The ECB and government policymakers have helped, but the main reason for hope is that the supply chain shocks triggered by the pandemic have begun to work themselves out, allowing inflation to come down without more drastic tightening by global central banks.

V: Europe and the US risk getting involved in a trade war over the US anti-inflation law. Does this dispute risk shaking the unity of the West at this crucial geopolitical moment?

PS: Europe and the US have a long history of being able to compartmentalise their disputes. Their long, protracted fight over the Iraq war in the early 2000s, for instance, did not hamper transatlantic trade relations. Similarly, I don’t see the current dispute over American green subsidies bleeding into the allied unity over Ukraine. The White House and the European Commission have both shown signs they want to find a compromise, and I don’t believe the Biden administration implemented the Inflation Reduction Act with the intention to spark a trade war with Europe. It is, in some ways, an unintended consequence. That said, there are growing signs that the law is drawing significant investment away from Europe and into the US, so the EU may feel the need to act more quickly and aggressively, escalating an already tense situation.

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