Weaker Economy Will Suffer

Sanctions against Russia may be designed to maximize the impact on the Russian economy, but they will also cause significant damage to the economy of the European Union – and this needs to be stated clearly and loudly. Initially, the largest companies that work most with Russia will feel the impact on their business; the blow to Russia will hurt them the most: Shell, Total, Volkswagen, BMW, Renault, Airbus…

The number of EU companies that have already felt the severe and direct consequences of the sanctions on their business is staggering. Compared to them, the price that Croatian companies like Podravka, AD Plastika, Klimaopreme, Pliva, JGL and others operating in that market will pay due to sanctions against Russia does not seem so large in absolute terms, but for each of them, it is indeed significant and will greatly affect their operations.

Consequences Are Already Being Felt

The European, and consequently Croatian, problem is not only the companies that operate directly in the Russian market and are now affected by sanctions. Due to the war in Ukraine, all branches of the economy that operate directly or indirectly with Russia and Ukraine, as well as Belarus, will be affected. These are companies that export their services and goods to those markets and are already unable to collect their receivables today.

The Commission Needs More Time

Manufacturers who depend on raw materials from these countries, suppliers of various technologies from them, are under pressure. Even companies that rely on loans from Russian banks or have accounts with them are already feeling the consequences. There is no doubt that the war and sanctions will affect the already disrupted supply chains, which will have long-term effects on other sectors and industries. It will increase the already very dangerous inflationary pressures, and on top of that, there will be unstoppable prices of gas and oil… This will be felt from the north, through the west to the east and south of Europe. As if that were not enough, it will be very difficult to resist the uncertainty due to the war and threats of nuclear weapons, which will have long-term effects on consumption and investments, and in such circumstances, it will be very tricky to create conditions for growth in the future. And when the crisis seriously affects the economies and companies in the EU, even if it only grazes Croatia, all those Croatian companies that depend on EU markets will pull the handbrake one after another – and there you have it!

European Commission Vice President Valdis Dombrovskis recently emphasized that the institution has already assessed the impact of the Russian invasion of Ukraine on the economy in the EU and that, although the situation is changing by the hour, preliminary estimates suggest that the growth of the EU’s overall economy will not stop, but the total GDP of the eurozone could decrease. The decline could range from 0.3 to 0.4 percent or, in the worst-case scenario, one percent. Sustainable, they estimate in Brussels. This may sound good for Brussels, Frankfurt, Paris, or Milan, but it takes a lot of guts to clearly state that the stronger economies of the EU will better withstand the war in Ukraine, while countries like Croatia could easily fall into a crisis spiral from which it will be very difficult to escape.

– The impact of sanctions and the war will be different for different EU member states – said Irish Finance Minister Paschal Donohoe, elected as the president of the Eurogroup, in some way the European finance minister, to reporters in recent days. But if countries in the eurozone expect an economic slowdown, what kind of decline awaits countries that depend on the economies of the eurozone, like Croatia? And how quickly can countries like ours pull themselves out of that decline?

The consequences of the sanctions could be mitigated by money. State money, no matter how much this state intervention in the economy is condemned by liberals, now seems to have silenced them, as they are not even responding to calls at the moment… And while the Serbian government last week, just two days into the Russian aggression against Ukraine, decided to support and financially assist its companies that depend on the Russian market, the European Commission needs more time to determine whether its economies even need assistance and what kind. Thus, the administration in Brussels has committed to consider the implications of the Russian invasion on European fiscal policy in the coming weeks and to support the European economy if necessary.

– Allow us to reconsider and reassess our fiscal strategy to ensure that we can support our economies and citizens at this moment of greatest challenge – said the so-called EU finance minister Donohoe.

The Chapel in Čađavica Can Wait

And while we wait for European leaders to realize that they have a situation in their own backyard that they will need to address before it spirals out of control, we cannot help but remember how all European governments, including ours, financially supported the economy during the pandemic due to a political decision to close down to weather that unexpected blow. The question is only why there is hesitation with such a decision so far. Despite everything, there is still capital available, and if a new independent fund for EU assistance cannot be established, perhaps money from the European Recovery and Resilience Fund can be used as assistance. Isn’t it more logical, no matter how small the market Podravka or someone else has in Russia, to help them weather this crisis as painlessly as possible and continue to operate positively than, for example, to renovate the roof of the chapel in Čađavica or invest in the energy renovation of the local action group (LAG) building in central Istria?

What exporters, the opposition, and entrepreneurs who are already feeling the consequences of the conflict in Ukraine think about this proposal can be read in the printed and digital edition of the Lider weekly.