RUSSIA $1 TRILLION COST of ENERGY SUBSIDIES as Europe Provides Protection & GLOBAL DEBT RISES

本站添加: 2026-05-26

[00:00:03]Hi, welcome back to Joe Blogs. In this episode, I want to talk about the energy crisis which is now starting to hurt Europe in a really big way. We've talked about the rising price of gas and oil and coal as a result of Russia's invasion of Ukraine and the prices fluctuate on a daily basis. But overall, what we've seen is an enormous movement in those prices. So gas which is provided to a lot of countries in Europe to use to make electricity has gone up by around four times since the start of 2022. So that's a 400% increase. And the problem that a lot of the big economies in Europe have is that their consumers and a lot of their companies are dependent on that gas because as well as being used to generate electricity which obviously everybody is dependent upon, it's also piped directly to companies and consumers to use in industrial processes and in heating and for cooking. So it's really critical to the future success of the economy, but it's also a really big part of everybody's budgets. So this is a classic situation of what's known as inelastic demand. And inelastic demand relates to any product whereby consumers and industry will continue buying it irrespective of the price. So historically a good example of inelastic demand was gasoline. Because if you've got a motor vehicle and you need to travel to work or wherever you're going, then you will need to buy that fuel irrespective of what the price is. So you may not be happy if the price doubles and you may decide that you want to cut the number of journeys that you make, but you will still buy that fuel.

[00:01:44]And a really good way of proving that is that when we have a fuel shortage, when everybody starts talking about some sort of supply issue, we see massive cues at all of the gas stations. You see cars queuing for miles trying to fill up and they will pay any price whatsoever at that point because they're just desperate to get the fuel. And that's really the situation we've got in Europe right now when it comes to natural gas because the infrastructure has been built to rely upon it. You can't just switch it out for any other form of energy. So, if you've got a house where the heating is fully dependent on gas and all of your appliances are gas-fed for your cooking, then you can't just suddenly say, "Well, the price of gas has gone up, therefore, I'm not going to buy it any longer." You'll just have to keep buying it and cut back on other expenditure. And that's the situation that a lot of Europe is finding itself in right now. So in this episode I want to talk about what the governments of Europe are doing because a lot of the governments have now introduced some form of subsidy system and those subsidies can be applied in a number of different ways. You can either give money directly to consumers and industry to help them pay the increased bills or you can provide a price cap which tells the companies who are billing people that they're not allowed to charge above a certain level. or you can provide some form of loans or guarantee schemes to get companies and individuals through this period. And what we've got in Europe right now is a combination of all of those different tactics. We're seeing different countries introducing different policies. So in today's episode, I want to run through exactly what's happening in some of the key countries. Have a look at the size of these schemes because we are talking hundreds of billions of dollars. The key objective here is to keep the economy moving. You don't want companies and individuals going bankrupt as a result of an increase in gas prices caused by Russia's invasion of Ukraine. That's the last thing that anybody wants. But the bottom line on all of this is that somebody is going to have to pick up the bill. If you introduce a subsidy scheme or a loan scheme, then somebody's going to have to pay for that. And ultimately, it will be those countries. They will be increasing their debt burden. It's putting more pressure on those economies. So, we'll run through some of the key schemes. We'll have a look at how much is being invested by all of those countries. And then finally today, I'll wrap up with my summary as to what I think the implications of the introduction of these schemes are for the European economy and the global economy. So before we get started on all of that, if I could ask you for a thumbs up at some point during this video if you're enjoying the content, please subscribe if you haven't done so already. Don't forget I always include chapters so you can skip through things if you don't have time to watch the entire video. And if you'd like to support the channel, please have a look below where you'll find links to YouTube super thanks and membership as well as buy me a coffee and patre.

[00:04:29]The United Kingdom has had a change of prime minister recently. Everybody got sick and tired of Boris Johnson. There was a vote of no confidence, so he had to leave the job and a new candidate was put forward and there is now a new prime minister called Liz Truss. And one of Liz Truss's first moves has been to introduce a huge subsidy scheme relating to energy costs. The UK will cap consumer energy bills for two years and funnel billions to proper power companies. The new package, which will be funded by government borrowing, could cost Britain around $175 billion. And she told Parliament, "This is the moment to be bold. We are facing a global energy crisis, and there are no cost-free options. Average household energy bills will be held at around £2500 a year for the next two years, staving off a major price leap that was expected to feed through in October, which threatened the finances of millions of households and businesses. In addition to the household support, the Bank of England will launch a 40 billion pound scheme to shield energy firms from a liquidity squeeze due to sky-high gas prices. The UK does own oil and gas fields and in order to boost supply, the moratorum on fracking will be dropped and new oil and gas exploration licenses will be issued for the North Sea. So these measures represent enormous support for both consumers and businesses in the UK. There were real concerns in the market that energy prices were about to quadruple in the UK because a temporary price cap was in place since the start of the Ukraine war, but that was due to expire at the end of September. So these new measures extend the subsidies for the next two years and give everybody certainty as to the maximum amount that they will have to pay. The 40 billion pound package that's been announced to support companies is also really important and I made a video recently talking about the potential bankruptcy of a lot of the smaller businesses that are involved in the energy market because the price rises in gas and oil are really hitting these companies hard. Most of these companies operate on very thin profit margins and they've had to find more cash and credit to enable them to continue trading. So these facilities that have now been put into place will enable them to obtain that credit and it keeps the competition in the market because the whole point of deregulation in the UK was to try to increase the number of companies that were involved to get away from the old big six to give more competition and to give better prices. Now, unfortunately, consumers are not getting better prices right now because of what's happening in the market. But the government wants to keep these companies operational and trading because they employ a lot of staff and assuming that we get back to a point of normalization at some point in the future, they will want these companies in place to be able to then grow and develop going forward. But the overall summary on the UK situation is that the total cost to the UK government is estimated to be around $175 billion. And that package only covers a percentage of the price rise because bills have been capped at 2,500.

[00:07:28]Prior to the war starting, the average bill in the UK was less than £1,000. So we've already seen bills more than double and all the consumers will have to swallow that cost. But the extra increase, the additional portion will be covered by the government. So we've got 175 billion of additional cost that the government's picking up and a similar sort of figure that consumers are having to pick up just because they're having to pay more for their gas and electricity.

[00:07:57]Germany has announced that it will spend at least $65 billion on shielding customers and businesses from soaring energy costs. The measures which were agreed after 22 hours of talks between the three coalition parties in Germany include benefit hikes and a public transport subsidy and will be paid for by a combination of a tax on electricity companies and by bringing forward Germany's implementation of the planned 15% global minimum corporate tax. The latest package takes the total amount that Germany have committed to inflation busting to 95 billion euros since the start of the Ukraine war in February. As a direct comparison, the government spent 300 billion euros propping up the economy over the two years of the COVID pandemic. So, this shows the enormous weight that's been put onto the German economy over the last few years. Finance Minister Christian Linda said that the 65 billion package could be increased if electricity prices rise further.

[00:08:58]Finland and Sweden have announced plans to offer billions of dollars in liquidity guarantees to power companies in order to avert what they see as a potential financial risk to the whole economy. This has the ingredients for a kind of Lehman Brothers of Energy Industry. The Finnish economic affairs minister stated when Lehman Brothers, the fourth largest US investment bank at the time, filed for bankruptcy in September 2008 with more than $600 billion in debt, it triggered the worst part of the US financial crisis. The government's program is a last resort financing option for companies that would otherwise be threatened with insolveny, Finland's prime minister stated. State controlled Finnish power company forum praised the proposals made by Helsinki and Stockholm. We appreciate Finnish and Swedish governments taking swift action to stabilize the Nordic derivatives market and support Nordic energy companies in time of crisis, the company tweeted. It's crucial to keep companies operational. Our discussions with the Finnish government are ongoing.

[00:09:55]The guarantees aim to prevent ballooning collateral requirements from toppling energy companies that trade electricity on the NASDAQ commodities exchange, an event that could in turn spread to the financial industry. Lower gas flows from Russia, both before and after its February invasion of Ukraine, have pushed up European prices and driven up electricity costs. The rapid rise in electricity prices has resulted in paper losses on electricity futures contracts of power companies, forcing them to find funds to post additional collateral with the exchanges. The collateral requirements on NASDAQ clearing recently hit 180 billion Swedish crowns, up from around 25 billion in normal times due to the surge in power prices, which have risen some 1,100%.

[00:10:40]The government feared that the Nordstream 1 shutdown would lead to a further surge. The Swedish finance minister said that the guarantees would last until March 2023 in Sweden and would also cover all Nordic and Baltic nations for the next two weeks. Without government guarantees, electricity producers could have ended up in technical bankruptcy. Sweden is planning liquidity guarantee package of $23 billion and Finland is offering $10 billion.

[00:11:07]Denmark has put together a guarantee package equating to around $13 billion to support energy firms challenged by soaring energy prices. The guarantees are aimed at securing the necessary liquidity for companies facing major collateral requirements triggered by high power prices. Danish business Minister Simon Colorup stated it will help ensure the stability of the power market.

[00:11:31]The rest of Europe is currently working on similar schemes, but let's have a look at a table which shows the existing schemes in place across the whole of the EU. This chart shows the level of support that was provided by governments in the EU up until the end of July 2022.

[00:11:46]The black dots on this graph relate to the right- hand scale which is shown in billions of dollars and the blue bars relate to the percentage of GDP for each individual country and relate to the scale on the left hand side which is in percentage. You can see that up until the end of July, the country that had the larger scheme was Germany with around $60 billion of support. And this is in addition to the $65 billion package that we just talked about. These support schemes are focused predominantly on households and businesses. So these are predominantly aimed at keeping the cost down for users and do not include any forms of guarantees provided to companies in order to give them liquidity to keep trading. The country with the next largest bill on this table is Italy that had provided around $50 billion worth of support. And you would have expected Italy and Germany to be the two largest contributors because they're the countries who were most exposed to Russian gas because they had pipelines that were feeding Russian gas directly into each country. They'd built up large power plants that rely upon gas to produce electricity. And they also supplied that gas directly to their consumers, both business and private. So they had the double whammy. They're using gas to make electricity, which obviously then goes to all of the consumers, and they're also sending the gas directly to those consumers. So in order to keep the costs down for those end users, they've had to introduce these generous schemes. And these schemes will continue costing more money going forward. The country with the third largest subsidy scheme was France with around $45 billion of investment.

[00:13:19]And the country with the fourth largest expenditure was Spain with around $27 billion. Other countries with notable expenditure include Austria with around $10 billion, Poland coming in around 8 billion, Greece around 7 billion, the Czech Republic and the Netherlands around 6 billion, and then there are a whole host of other countries who've provided support schemes of billions of dollars.

[00:13:44]So what's the summary and conclusion today? Well, I wanted to post this video because we're talking a lot about rising energy prices and you can get a little bit blaszeise to this news. It becomes old news quite quickly. But when you look at it in real money terms, it starts to show what the impact on the economy is now and also going forward because the governments all around Europe are having to do something to protect their consumers. They can't let the massive increase in gas and oil prices feed straight through to the end users because we would start seeing widescale insolvency and bankruptcy both on a business and a personal level.

[00:14:23]People and businesses can't afford a four times increase in energy costs because energy is a big part of everybody's expenditure. And as I mentioned before, the poorest members of society and companies that have really small profit margins just aren't able to cope with this level of price increase.

[00:14:40]So the governments have stepped in and provided these subsidy schemes. But as I mentioned earlier, somebody has to foot the bill and ultimately it will be the taxpayers in those countries who will have to pay this money back at some point in the future. Now at the moment we're into crisis management. It's a wartime environment and so everybody just wants to get through. We need to have a complete restructuring of the supply chain. All the countries in Europe are having to change where they're sourcing their energy from because most countries were buying directly from Russia, mainly because it was the cheapest form of energy available. So, it made sense to do so.

[00:15:17]But because of the political issues arising as a result of Russia's invasion of Ukraine, a lot of these governments have now decided that they no longer want to buy from Russia. So, they're having to go to more expensive methods.

[00:15:29]They're having to put infrastructure in place and all of that costs money. So what we're seeing here is an increase in the national debt burden for all of these countries. And of course they've already got large national debt burdens that built up through the COVID pandemic when we had all of the lockdowns and a lot of industry had to close down and most of the country had to close down in many situations. All of the furow schemes and all of the support schemes that were put in place added more debt to those countries burdens. So at the start of 2022, we already had a lot of international debt that had built up and it was hoped that through 2022 we would see a growing global economy. Everybody would get back to normal business and we would start paying down those debt levels. Russia's invasion of Ukraine has scuppered all of that. It's put everybody back to square one. And in fact, we're going backwards because the national debt burden is increasing in most countries around the world right now as a result of the massive increase in energy costs and food costs and commodity costs. So, this is putting more and more pressure on the global economy. And as you'll know if you follow the channel, we're expecting the global economy to go into a recession either at the end of 2022 or the start of 2023. So, we've got increasing debt and reducing GDP, and that obviously isn't a good situation to be in. And these support schemes are adding more pressure. And it's estimated that the total additional cost for all of these schemes will be somewhere in the region of $1 trillion, $1,000 billion. So, that is directly adding to the debt burden in Europe. And of course that estimate of a trillion dollars is based on this war ending and the markets returning to normality. If the war carries on, if Russia decides that it wants to make this a long-term invasion like it did in Chetszn where the second war lasted for almost 9 years, then we could see a prolonged period of really high energy prices. And these subsidy schemes will either have to continue and add more to the national debt burden or the prices will just be passed on to consumers and we then may well see those bankruptcies and liquidations and insolvencies. So this is really a rock and a hard place for a lot of the governments in Europe because they don't want all of their people and businesses to go bust. But equally they can't just keep adding to the debt burden every single year for the rest of our lives. So, at some point, something will need to be worked out, but what we know for certain right now is that for the next two years in the UK, this subsidy scheme has been put in place. It's shorter in most other countries, but likely to be extended because, as I've just discussed, if we're in a recession, you can't really afford to pass on all of these prices to consumers and businesses because that will just make things worse. So, in the medium term, we're going to see an increase in debt and that's going to put more pressure on all of the governments.

[00:18:25]So hopefully that's given you some perspective and a more of an understanding as to why an increase in oil and gas prices is causing major problems for the European economy. And as I've said many times before, the whole of the world is interconnected. So there are problems in Europe that has a ripple impact all across the rest of the world. So nobody is immune to what's happening in Europe. Hopefully you've enjoyed today's episode. But if you've liked what I've said, you've thought it was interesting and thoughtprovoking, then please give me a thumbs up and don't forget to subscribe if you haven't done so