Luis Garicano 🇪🇺🇺🇦 @lugaricano@respublicae.eu
Unofficial automated mirror. No copyright asserted. ∎ Economist. Back at LSE as a Professor at @LSEPublicPolicy Summer 2023. Non-resident Fellow @bruegel_org. Recovering MEP. Currently @ChicagoBooth.
Joined Apr 2022
RT @Mylovanov: 🇺🇦 needs $50B over the next several months. G7 countries have pledged over $24B in support of 🇺🇦. This is great news. To put this into a perspective: $31B and $100B is what the EU has paid since Feb 24 and will pay over the next several months to 🇷🇺 for oil and gas.
RT @margayakovenko: Quiero pensar que la señora Belarra no está contra los ucranianos. Simplemente no sabe lo que es la muerte ni lo que es perder a un ser querido en una guerra. O que tú abuela viva en un sótano frío. Ignora el dolor. Tiene mucha suerte
https://www.elmundo.es/espana/2022/04/22/626272fde4d4d8f4048b4592.html
@lapatina_ Coming back from Kyiv today, and had same feeling: people really so have a sense of shared purpose and a willingness to work with the others that is absolutely striking. I hope it helps lead Ukraine to be and become a full member of the EU!
The other key issue I addressed is Ukrainia’s urgent need of liquidity. Revenue has fallen and the monthly deficit increased to $8bn. $50bn are needed to win the war and keep Ukrainian lives going on. So, we should not wait for reconstruction to provide aid!
2) EU ‘willingness to pay’ i.e. what price are we willing to pay to damage Russia. If this is high enough, it can have the same effect as an embargo. So the answer is on us. And it can be addressed today.
What does it actually depend on? 1) Shape of Russia’s supply curve: Russia is very dependent. EU and other allies are 80% of fossil fuel exports. It won’t be easy for it to find other buyers. Extra evidence: gas pipelines, low oil production costs or current price spreads.
How do we design the optimal tariff? EU’s dependence does not directly affect it. Buyers who depend on the good can continue to buy. They will face higher prices, but they can be compensated.
At @VoxEU, Sturm showed that at worst (gas absolutely needed, demand totally inelastic) a tariff is ineffective but not harmful, as it increases price but revenue is given back. In any other scenario, a tariff reduces RUS welfare & allows EU to compensate people for higher prices
Despite all evidence and alternatives, the EU remains blocked. We must overcome the “All or nothing” debate. A tariff on Russian gas and oil is a good start. It would reduce EU’s consumption while allowing those who cannot do without gas to continue purchasing it.
Other studies have run the numbers for Germany with other assumptions. @DIW_Berlin has modelled supply and demand and reached the conclusion that, in a ‘middle’ scenario, the supply gap is only 10%. So security of supply is possible even after Russian imports stop.
Every argument used by the German government to avoid using nuclear temporarily only shows lack of political will.
But Germany has been closing its reactors since 2011. Assuming half of the gas is covered by LNG, reopening for 4 reactors on top of the 3 just closed could compensate Russian imports.
4. Substitute gas used for power by nuclear. Germany’s Russian gas imports are 40%, while gas used for power has smaller but comparable size. As @tomaspueyo argues, if we substitute ‘power’ gas, we would almost not need any Russian imports. What is the substitute? Nuclear.
With the economic value of the reserves, we could compensate most inconveniences created and gain approval of the citizens involved.
3. Take advantage of the largest gas reserve field in Europe: Groningen. It has 500 bcm i.e. 3+ years of Russian imports. There has been political pressure to close the field due to mini-earthquakes.
I suggest several alternatives to substitute the 150 bcm of EU imports of Russian gas.
1. Tap LNG - we are currently importing almost 2 bcm per week of LNG. That could become nearly 100 bcm i.e. 2/3 of what we need, by the end of the year
2. Use gas storage
Clear alternatives exist for the 3 fossil fuels - spare capacity, imports from 3rd countries and other actions. The EU has started to move: coal has been banned (although starting in August). Oil may go next. But the EU is very reluctant to move on gas.
That’s why I have been proposing a total ban. Top economists have run the maths and agree that it would be manageable for the EU economy - impact estimated at 2-3% GDP at most.
On the Russian side, the reason is clear: we have sent +€37B in energy imports since the beginning of the war.
First, we need to acknowledge that we have put forward an unprecedented set of sanctions on Russia and provided significant support to Ukraine. But this has not been enough.
Unofficial automated mirror. No copyright asserted. ∎ Economist. Back at LSE as a Professor at @LSEPublicPolicy Summer 2023. Non-resident Fellow @bruegel_org. Recovering MEP. Currently @ChicagoBooth.
Joined Apr 2022
