By J Mulraj
Sep 4- 10, 2022
Stopping a senseless war requires some sense
The war in Ukraine was started senselessly, and the destruction, suffering and loss of lives was totally avoidable. For years Russia had been pleading with NATO, which includes USA, not to expand itself further East, and to ensure that its neighbour, Ukraine, would not become a part of it. For, if it did, western missiles would be placed within striking distance of Moscow, threatening the existence of Russia.
As anyone with a modicum of historical awareness knows, this is how the 1962 Cuban missile crisis began, which almost triggered a nuclear war between Russia and USA. The Americans had, ignoring Russian concerns, placed its Jupiter missiles in Italy and Turkey. In response, Russia placed its missiles in Cuba, threatening to strike America.
NIMBY (not in my back yard) is ignored, until it affects oneself! When America realised that it takes two to tango, the crisis escalated, then died down, when better sense prevailed.
So now, better sense should prevail, and the current war in Ukraine ends before a similar, deadly, escalation. As it is, there is a huge concern over the possibility of a nuclear accident at the Zaporizhzhya plant. The power supply needed to cool the reactor, has been damaged by the war.
NATO and USA spurned the several requests by Russia, to discuss its concerns of Ukraine being admitted into NATO. This led to the Russian invasion, and the current European energy crisis. the leadership of NATO, perhaps reassured by the American assertions that severe sanctions America would impose on Russia, would cripple its economy, thumbing their aquiline noses at Russia, stating that they upheld Ukraine’s right of free choice. A position that they reversed immediately after the invasion began, stating that Ukrainian membership was never being considered! A myopic vision doesn’t really combine with an aquiline nose
As it transpired, their calculus went horribly wrong! The sanctions failed to impact either the Russian economy, or its currency, the rouble. Instead, as mentioned in my previous column (Don’t Pick a Fight With Your Bullet Supplier), in this case energy, Russia turned off supply of gas to Europe. Europe, especially Germany, is dependent on cheap Russian gas, supplied via an undersea, Nordstream 1 pipeline, for its base load,power supply. Without it, industry will suffer a production cut, and households will suffer a cold winter.
The aquiline nose is back in business! Last week the EU announced a price cap on energy prices, which have shot up, but without an ability to enforce it. This is a MAD (Mutually Assured Destruction) policy, which is filled to the brim with insanity. As depicted in the illustration.
There have been several undesirable consequences of the bad calculus. Firstly, it has pushed up energy costs, in the absence of an alternative infrastructure. Germany had forsaken its existing nuclear plants, after the accident at Fukushima, Japan. It has established some solar and wind generating capacity, but far too inadequate, and unreliable, depending on the vicissitudes of nature. German climate is unsuitable for solar, hence output is a fraction of installed capacity.
Hence another consequence of bad calculus is that Germany is increasingly dependent on the dirty coal which its Greens Party had railed at. it uses both hard coal (Russia being its main supplier) and lignite, the most polluting form of coal. Germany has, in June 2021, started to shut down its lignite coal mines.
One must wonder at the assumptions it’s leadership made when refusing to discuss with its bullet (ie, energy) supplier about Ukraine’s membership to NATO, which, admittedly, wasn’t even on the cards. Prior to important decisions, did they not consider how dependent they were on Russia for their cheap, and clean, source of energy?
The President of the German Chambers of Industry & Commerce stated that more and more companies don’t have contracts for regular supply of energy . Producers of steel, energy intensive, has been cut; this, in turn, would impact all industries, including automobiles, a German pride. Other sectors, such as chemicals and agriculture, face incredible hardships.
It is quite possible that EU unity may collapse, under pressure from an irate citizenry. In Germany, Czechoslovakia and UK angry citizens have taken to the streets in protest against skyrocketing energy prices. Some are threatening to stop paying electricity bills, much like Chinese protesters have stopped paying bank loan instalments. The difference, of course, is that the former are protesting the cost for services delivered, the latter are protesting non delivery of a product fully paid for!
Worse is yet to come. Recently, Russia had agreed to allow, unhindered, supply of Ukrainian wheat to needy countries, under a UN initiative. Russia now claims that the shipment went, instead, to richer European nations, and threatens to withhold its agreement.
This can be a colossal human tragedy. Ukrainian wheat, now out of circulation, provides food for 400 million people. As per the United Nations 140 m. people, in ten countries, are living in acute hunger. If wheat supply is stopped, millions will due a cruel death.
Add to that is the Chinese enigma. it’s realty sector, contributing 30% of its GDP, was, in essence, a Government encouraged Ponzi scheme. Home owners were enticed by early gains to buy multiple houses, paying 100% in advance, funded by bank loans. Developers used the advances to bid for more land parcels (instead of completing projects) and this suited local Governments, or provinces, whose main income source were such auctions. The collapse of Evergrande ended the Ponzi, and borrowers are threatening, fairly, to stop servicing loans on undelivered projects.
The mortgage crisis has inevitably spilled over to the banking sector, starting with rural cooperative banks but spreading to the biggest, state owned, banks. Depositors are unable to withdraw money.
Added to that is a huge water crisis, with the Yangtze, China’s largest river, running low. This affects river transport and logistics, as well as hydro power supply.
Atop this pyramid of misery is the insane belief that a lockdown will help eradicate Covid. In the absence of a successful vaccine (the Chinese one doesn’t work against later strains of the virus) all that the policy has done is to curtail production and exports (workers are locked in), hence Chinese GDP. This, in turn, has lowered China’s import demand, hence the recent drop in prices of commodities, including crude oil.
The world’s largest economy, USA, will/has entered recession, depending on whether to believe Biden’s new definition of it, or the old, time tested one, of two quarters of lower growth. Fudging figures is not a monopoly of any nation.
So what we are looking at is a slowing US economy, a collapsed EU economy starved of energy, a limping Chinese economy afflicted by Mother Nature and political obduracy to reverse an unworkable policy, and a famine that can affect millions. Remember, the last time such a shortage happened, in 2010, led to a series of protests called the Arab Spring.
Last week the BSE Sensex rose 990 points to close at 59793.
Perhaps the stock market is hoping that China, the largest but one economy, will abandon its zero tolerance policies, will restart its economy, and revert to becoming a growth engine for the world. It is betting that Xi Jinping will be granted a third term in mid October, when party leaders meet. Assured of a lifelong top job, Xi may relent on his policy, and open up the economy. That seems unlikely, because party leaders cannot openly admit to policy errors.
Hence it is safer to be wise, and wiser to be safe.
Picture source: https://www.ft.com/content/07184d86-81cf-11e2-b050-00144feabdc0
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