The Economist - UK (2022-04-30)

12 Leaders TheEconomistApril30th 2022

pay teachers more if they take on more tasks willupsettheirun­

ions.  His  campaign  against  red  tape  has  far  to  go.Heseemsto

have given up on making French labour marketsanymoreflex­

ible. He needs to be tough. 

At the same time, he must find ways to deal withtheinequal­

ity that fuels support for the radical left of Jean­LucMélenchon,

who ran a strong third in the first round of the presidentialrace,

as well as for Ms Le Pen. France’s big cities hum withtechstart­

ups, global­minded financiers and swanky shops.Inthecrime­

ridden  banlieuesaround  them,  and  in  the  smallertowns,the

grimy  post­industrial  north  and  the economically stunted

south, it is a different story. Such places do not voteforcentrists

like Mr Macron, whom Ms Le Pen calls le présidentdesriches.

Mr Macron has a good plan: lots more educationandtraining.

But such things take time and money, and the centristsmaynot

have  enough  of  either.  If  the  march  of  the  radicalscontinues,

perhaps under the leadership of Marion Maréchal,MsLePen’s

slightly less polarising but no less nationalist niece,theelection

in 2027 will be perilous. Mr Macron’s great successhasbeento

dominate the centre ground of French politics. Alas,thismeans

theonlyseriousoppositiontohimnowcomesfromtheexpand­

ingextremesofrightandleft.Thatisnota comfortableprospect.

NorwillMrMacron’schallengesstopatFrance’sborders.One

cannotdoubthisambition:hewantstorebuildEurope,notjust

hisowncountry.Havingtwicefoughtoffthepopulistdragon,

andwitha solideconomicrecordthathasgivenFrancethesec­

ond­highestgrowthrateintheg7,helookslikeEurope’snatural

leader.Germany’sOlafScholzisfloundering,Britainhasmar­

ginaliseditselfandItaly’sMarioDraghiisonthewayout. Mr

Macron’sviewshavealotofsupportinEurope(seeCharle­

magne).Theeuhasbecomemoreeconomicallyinterventionist,

lessfiscallyrestrictiveandmoreinclinedtobeefupitsownde­

fences:moreFrench,inotherwords.

ButbigchangesinEuroperequireconsensus,andineach

areawhereMrMacronhasbigplans,hewillfacerigidopposi­

tion.CentralEuropeansarewaryofanythingthatmightchal­

lengetheprimacyofnato; thenorthern“frugals”donotwantto

payforanotherroundofeulargesse.Beleagueredathome,Mr

ScholzmaynotbethehelpfulpartnerthatMrMacronwillneed.

Winningelectionsishard:securinga legacyharderstill.n

E

ven asrussia has invadedUkraine,terrorisedciviliansand

flattened  Mariupol,  the  European  Union  hasspent€44bn

($46bn) buying its oil and gas. That could be abouttochange.On

April 27th Russia announced that it had stoppedsupplyinggas

to Bulgaria and Poland, which had refused its demandtopayin

roubles. Because the eucan easily buy oil, but notgas,fromelse­

where, Russia is attempting to exploit its point ofvulnerability.

Europe is considering how to respond. Alreadyitwasenter­

taining  the  possibility  of  sanctions  on  Russianoil.Butitfears

that it has the weaker hand. Olaf Scholz, Germany’schancellor,

has  said  that  an  embargo  would  plunge  Europeintorecession

without doing much to hurt Vladimir Putin andhiswareffort.

Russia’s gas is used both to heat homes and to

power factories, and among Europe’s big econ­

omies Germany and Italy are especially depen­

dent on it. Predicting what would happen with­

out Russian gas is hard, because it depends on

how  quickly  supply  chains  adapt  around  the

disruption (see Free exchange). Optimistic aca­

demics  say  the  initial  cost  to  Germany’s  econ­

omy of a full energy embargo could be just 0.5%

of lost gdp; Germany’s central bank puts the bill at 5% of gdp.

Although Mr Scholz is right that energy sanctions would be

costly, he underestimates the harm they would do to the Krem­

lin.  He  says  that  Russia  probably  cannot  spend  the  foreign  ex­

change it earns from oil and gas sales, because its financial sys­

tem has been cut off from much of the world. There is some evi­

dence  for  this.  South  Korea  has  timely  trade  data  and  partici­

pates  in  sanctions:  in  March  its  exports  to  Russia  fell  by  63%.

With its central bank’s foreign­exchange reserves frozen, Russia

has had to enforce capital controls and raise interest rates in or­

der to support the rouble.

Yet  swathes  of  the  global  economy,  including  China,  India

andmostoftheMiddleEastandAfrica,continuetotradefreely

withRussia.Secondarysanctions,whichwouldpunishanyone

transactingwithRussia,arenotinplace.SomeRussianbanks

canstillinteractwiththeWest.Asa result,evenwithitscentral

bankundersanctions,itislikelythatRussiaismakingcreative

useoffreshlyacquiredhardcurrencyfromsellingenergy,in­

cludingtobuyarms.Itneedputonlyenoughfinancialinterme­

diariesbetweenitstransactionsandthosetakingplaceinNew

YorkorFrankfurt.

ThecaseforreducingtheflowofcashintoMrPutin’scoffers

thereforestands.Andit issufficienttojustifytheeconomicpain

involved.In 2020 eumemberstatesimplementedlockdowns

whichcausedannualgdptoshrinkbyalmost

6%inordertoslowthespreadofcovid­19.Cut­

tingofffundingtoaninvaderthatwouldthreat­

entoconvertputativesuccessinUkraineinto

aggressionagainstotherEuropeancountriesis

both morally sound and strategically desirable.

What is more, the design of sanctions could

lower their economic cost. One idea is to levy a

high tariff on Russian energy, rather than ban it

altogether.  To  keep  selling,  Russia  would  probably  need  to  cut

prices so that its oil remained competitive with other countries’.

(Redirecting all its oil elsewhere would be an enormous logisti­

cal challenge.) A high tariff could in effect seize some of Russia’s

oil profits without disrupting supply. The consequences for gas

prices are harder to predict. But because Russia cannot move gas

pipelines any more easily than Europe can find alternative sup­

pliers, it would probably absorb at least part of a tariff.

In either case, taking action may provoke Mr Putin to cut sup­

plies further. If a tariff morphs into an embargo, so be it. Russia’s

war  would  become  harder  to  sustain—and  in  the  decades  to

come Europe would be more secure.n

Europe should imposea hightariffonimportsofRussianoilandgas

EU2 natural gas

Production and imports, %

250 50 75 100

Russia Norway LNG

Production Other

The case for energy sanctions

Curbing Vladimir Putin