Despite Russia’s stoppage of gas supplies, Europe could overcome its energy crisis this winter, Noble laureate and top economist Paul Krugman said on Friday.
“The physical scarcity of gas, while real, shouldn’t be crippling … Europe should be able to get through the winter without freezing,” he wrote in a New York Times op-ed, pointing to higher-than-normal energy reserves across the European Union and availability of some alternative energy sources.
Norway has replaced Russia as Europe’s number one gas supplier, and the EU recently reached its 80% gas storage target two months ahead of schedule.
However, the dilemma is financial and social, Krugman warned. Letting market forces play out is the efficient policy response. Still, it is also “grotesquely inequitable” as energy producers with low costs earn massive profits while families face financial mayhem from energy bills, he said.
“There’s also a macroeconomic risk. Europe still has powerful unions, and some of them will be in a position to demand wage increases to offset a soaring cost of living. The result could be a wage-price spiral that would be costly to unwind. So just letting energy prices rise isn’t really an option,” he explained.