Record high energy prices have forced European officials to pursue loose fiscal policies that will exacerbate the euro’s weakness against the dollar.
Promises of liquidity support for banks and hedgers, economic relief in the form of price caps for consumers, and hints of assurances that governments will “make the difference” between energy supply costs and consumer returns for utilities are all causing a major problem for the value of the euro, at least relative to the US dollar.
Almost everything is about supply and demand, and almost everything is affected by the supply and price of goods, most notably the availability of supply and the price of energy. The escalating European energy crisis, caused by natural gas shortages due to renewed Russian imperialism and Germany’s over-reliance on Russian supplies of natural gas, will increasingly affect the euro-dollar relationship as winter sets in.
The supply in euros will, of necessity, increase as governments rush to provide financial support to consumers and industry in order to prevent industrial production from collapsing and citizens from revolting as they face crushing energy bills and potentially life-threatening energy shortages.
Russia has caught Europe in a quandary, and authorities in both Europe and Russia realize that the cold of winter has a good chance of wreaking havoc on Europe’s industrial economy and its population in general. Russian President Putin and his henchmen are counting on the deep downturn in the European economy and on widespread civil discontent, and perhaps even civil unrest, to undermine support for Ukraine’s resistance to Russian invasion. Putin has cut off gas via Nord Stream 1 to Germany, and has the ability to shut down gas from two important pipelines flowing through Ukraine. Europe has short gas, and therefore short energy, as winter approaches, and Putin is unlikely to loosen his grip for any reason other than Ukraine’s surrender, which won’t happen before winter comes.
Already high energy prices have prompted promises by eurozone members, both individually and collectively, to provide the necessary liquidity for utilities and their financial backers to meet what some estimate are up to $1.5 trillion in margin financing requirements versus the daily norm. Working hedges. Recent assurances that energy prices for consumers will be capped will require additional direct financial assistance to utilities that pay market prices for their energy inputs but collect artificially low returns for the energy output they produce and sell it to consumers at specified prices. The authorities have no choice. They must close the revenue gap for the utilities or face the prospect of no operational facilities at all.
None of this includes the additional financial assistance that would have to be given to the many industrial sectors whose production would be curtailed, perhaps even shut down, due to the unaffordability, or simply unavailability at any cost, of the energy supplies needed to run them. Commercial Operations.
Europe is facing a financial crisis of epic proportions caused by an energy supply deficit. By necessity, the supply and availability of the euro will have to increase to offset the effects of the current, and soon exacerbated by the onset of winter, the European energy crisis. More supply generally means lower prices; When calculating all the euro needed for the scenarios described above, the direction of the euro against the dollar seems inevitable for the foreseeable future.