Last week, the European Union faced a new crisis when it was revealed that inflation in the euro zone had soared to a record high, further increasing pressure on the ECB as the rise in prices showed no signs of slowing down. Eurozone inflation rose to 8.9% in July, up from 8.6% in June and 8.1% in May. The ECB has forecast the rate to average 6.8% in 2022 before falling to 3.5% in 2023 and 2.1% in 2024.
But the intense price pressure is sending massive shockwaves across Europe, with energy costs currently the main driver of inflation, up almost 40 percent in a year.
The Russian gas crisis has been a key factor, with reduced supplies to Europe via the Nord Stream 1 pipeline and price pressures that have seen growth in Germany’s economy, the EU’s largest, reduced in the second quarter of this year.
There are growing fears that Vladimir Putin could wage a political war against the EU by completely cutting off gas to Europe in revenge for crippling sanctions that have crippled Russia.
Charles-Henri Gallois, chairman of the Generation Frexit campaign in France, warned: “Inflation, on top of current low interest rates and high public debt, is quite explosive.
“The ECB has a big dilemma. If they really want to tackle inflation, they will have to stop quantitative easing and raise interest rates.
“But in doing so, it will lead to a collapse of the Eurozone as rates rise in southern Europe.
“If they let inflation go, it will lead to massive strikes, social and economic problems like we are currently seeing in the Netherlands.”
Gallois warned that the dreaded euro zone recession is now “obvious” as he sees no easy way out for countries that rely heavily on Russian gas.
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The staunch Frexiteer also attacked the fundamentals of the struggling euro, which last month fell to parity against the US dollar for the first time in more than 20 years.
He warned that EU sanctions against Russia are “suicide for Europe” and warned that if these are not eased quickly, the continent could be plunged into the “biggest financial crisis in its history”.
Gallois continued: “It was a mistake to save the euro. The euro is badly built from the start and will die sooner or later.
“So, I know the position is not widely shared in the UK, but I think sanctions against Russia are suicide for Europe.
“Economic sanctions that hit you harder than Russia are totally stupid.
“I am against the invasion of Ukraine, but we should stop the sanctions and focus on a peace to avoid the suicide of Europe.
“If we don’t, Europe will face perhaps the biggest financial crisis in its history.”
The latest jump in euro zone inflation last week is increasing pressure on Europe to react quickly to avoid a major economic disaster.
Rabobank’s Maartje Wijffelaars said the figures were “likely to give consumers and the ECB even more headaches”.
He added: “Going forward, the path of inflation depends a lot on what happens with Russian gas flows and thus energy prices, but in any case it is not expected to come down quickly.”
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