Cost of Living in Europe and Further Aid to Ukraine

The single largest contingent of readers of my essays is in the United States, and it is for their particular benefit that I open today’s piece with some concrete facts on how Europe’s self-imposed energy crisis resulting from the ban on import of Russian hydrocarbons is making it impossible for your average citizen of France, Belgium and many other countries in the EU to make ends meet. I hasten to add that the unworkable arithmetic of monthly household finance is day by day, week by week bringing us to the social unrest and political instability that I and others have been predicting ever since the trend lines on cost of living became clear some months ago.

I will not introduce official statistics, because when the going gets tough they tend to be presented in a very selective manner by the authorities. My ‘anecdotal’ evidence comes from the energy bills I am now receiving at my home in Brussels and from what friends and acquaintances in this country and in France tell me about their personal situations.

A couple of weeks ago, I received from Engie, the French based energy giant that owns Electrabel, the formerly independent Belgian electricity generator and distributor, a report on my annual electricity consumption for their accounting year ending on 7 October 2022.  The total charges were 1807 euros, meaning 150 euros per month. In the same communication, they informed me that the new rates applied to the coming year will require a 285 euro debit from my bank each month. Presto, my electricity bill doubles!

Meanwhile, my latest delivery of 1,000 liters of heating oil for our house was invoiced at 1,500 euros, which is also virtually double what I paid for oil one year ago. And I consider myself lucky that I did not follow the advice of various heating specialists who visited my home a year ago for maintenance work on our furnace. They had suggested that we go ‘modern’ and convert from oil to natural gas, because for seniors like myself that spares us the necessity of monitoring the level of mazout remaining in our basement tank so as to place a delivery order on time.  If you order too early, the minimum quantity of 1,000 liters will not fit and you are charged a premium for the delivery of a short order. If you order too late, the sludge at the bottom of the tank may feed into the system, blocking the filter on the way to the point of ignition and you have to bring in a repair man at the cost of several hundred euros.  Natural gas, I was told, would spare us these inconveniences.  Of course, today gas heating is not double but triple or more the cost it was a year ago, and friends who ‘went modern’ rue that decision. If there will be gas shortages this winter, which remains a possibility depending on the severity of the frosts ahead, these friends will also regret the inconvenience of heating cutoffs leaving them in the cold, literally and figuratively.

Again, to make sense of the heating oil figures, the 1,000 liters mentioned above heats my home for a period of 4 to 6 weeks in autumn, winter and early spring depending on how low the air temperature outside descends. So far this year, we have been very lucky temperature-wise in Western Europe this fall. But a nice drop to zero at night for a week or more later in this year can reduce substantially the staying power of 1,000 liters.

Lest my mention of these new costs sound like whining, let me assure the gentle reader that I personally have no problems meeting the costs. Now that the euro has fallen like a stone this year due to the shaky economy driven by the energy crisis and inflation, my U.S. social security checks each month are worth 20% more in local currency and my new additional energy costs are largely covered.  My highlighting these figures and new ratios of cost is to bring to the fore how they affect the great majority of this country’s working population.

 It would be fair to say that the monthly take-home pay of 70% of Belgians after the 50% income tax is withheld comes to about 1,500 euros. Just for comparison, if this figure seems unduly low, the state pensions of many Belgians come to just a few hundred euros; and you have to have been very successful in your working career to receive a pension equivalent to those same 1,500 euros.

Let us assume that my electricity and heating costs are well above average because of the size of my home and the unimproved state of our insulation.  Let us assume that these same 70% of the population have total energy costs now of 900 euros a month, or half of what I will be paying in effect.  In a household where there is only one breadwinner, this would leave just 600 euros a month for food, apartment rent or mortgage payments and all other expenses. The arithmetic just doesn’t work. Your household budget will be in sharp deficit each month.

I have taken Belgium as my example, but I assure the reader that the numbers for income and outgo of the majority of the populations in neighboring European countries are not much different. That is true even in Germany despite its seeming prosperity.  So what will the people do about it?  At what point does public indignation and growing poverty spill over into social and political unrest?

In past essays, I pointed to France as a country with a long tradition of political volatility, a country where workers will go out on strike at the drop of the hat. Indeed, when Macron raised the tax on petrol in November 2018 we saw the voluble and politically threatening emergence of the gilets jaunes or Yellow Vests, a movement which for a couple of years stubbornly resisted all of the government’s measures at suppression. Today, after losing its parliamentary majority in the last elections, the Macron government is much weaker and understands that it cannot fight strike movements head on even if it briefly threatened to bring in the army and to forcibly send workers back to their jobs in the refineries and petrol distribution network.  Accordingly, Macron has folded and now resorts to buying off strikers and other protesters. Their demands for salary hikes are not met, but they are quietly being given ‘premiums’ of several months pay to go back to work and shut up. So far that has been effective, but it is running up the ongoing budget deficits and may soon be unsustainable. It also places France in great dependence on Germany’s looking a blind eye at the fiscal irresponsibility of Paris and its violation of EU finance rules.

And so street demonstrations by tens of thousands of irate citizens against untenable increases in cost of living have arisen elsewhere in Europe. Even The Financial Times is today giving extensive coverage to yesterday’s march in downtown Rome which brought together the economic issue of unsustainable rises in energy costs and the political issue of the ongoing war in Ukraine and Europe’s failed policies in that regard. The banners read “End to Violence” and the overriding message was that Italy must work to bring the warring parties to the negotiating table, not feed the conflict by further deliveries of arms to Kiev. This is a movement that is sure to turn up in many other European cities in the coming weeks, and the European governments will be unable to ignore it.

Even in the United States, the worsening financial position of the government will likely force an abrupt change of policy on Ukraine after the Midterm Elections deprive the Democrats of control over Congress. Humanitarian instincts, concern for the growing death toll of Ukrainian males on the field of battle will have no role whatsoever in this revaluation of policy. It will be driven and it will be justified by the high and rising cost of federal government borrowing in pace with the rises in the prime rate to tame inflation, inflation that is in large part due to distortions in the global oil and gas markets that the sanctions on Russian energy are causing. 

For the powers that be, in Europe and the United States, the only ‘bright spot’ in the immediate future may be that the Russians solve their problems for them by winning the war with lightning speed.

Zelensky is reported today in Western media as saying that 3 million people may be forced to evacuate Kiev if the Russian assault on the electricity generation and distribution proceeds at its current pace.  Ukrainian authorities responsible for the national grid, say it may collapse in the near future.  And so we may envision two developments that lead to the same conclusion of Kiev suing for peace:  the flight of 9 million or more citizens to Western Europe where they threaten to overwhelm capacity of reception centers and so precipitate an armed push-back; and the disintegration of the Ukrainian fighting forces in the midst of national blackout.

Gilbert Doctorow is a Brussels-based political analyst. His latest book is Does Russia Have a Future? Reprinted with permission from his blog.

© Gilbert Doctorow, 2022