Analysis by Germán Gorraiz López: The Oil Dependent Europeans

publicerad 14 september 2023
Germán López Gorraiz, press photo

The Oil Dependent Europeans combined with unusual droughts and floods in the traditional world breadbaskets and the consequent application of restrictions on the export of commodities from these countries to ensure their self-sufficiency, could lead to a shortage of agricultural products in world markets, and an increase in their prices. to stratospheric levels and the consequent global food crisis.

Collateral effects of the escalation of oil

The escalation of crude oil to $100 could have as a collateral effect, the increase in inflation rates in the US and the EU, the consequent increase in the price of money by the Central Banks, and the subsequent economic asphyxiation of countless countries with public debt, which, combined with the economic stagnation that is looming in leading economies such as the US, EU, and China, would end up creating a scenario of secular stagflation in the world economy.

Stagflation is understood as the sum of runaway inflation and a scenario of economic recession (an economy enters a technical recession after two-quarters of consecutive falls in national GDP according to the IMF) and is a term coined in 1965 by the then Minister of Finance Briton, Ian McLeod, who used the word stagflation in a speech to the British Parliament.

This is one of the most dangerous combinations for the economy since both elements distort the market and the shock therapy to combat economic stagnation has the side effect of increasing inflation.

Thus, to encourage consumption and get out of the recession, therapies based on fiscal and monetary expansion are required, measures that in turn generate more inflation, which in the end becomes an explosive circle since it entails increases in the price of money by the central banks that will cause the economic asphyxiation of countless countries with stratospheric public debt.

By: Germán Gorraiz López, political analyst

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