Spain as gas hub + Sanctions hit medtech • Table.Briefings

Dear reader,

By acting as a neutral mediator in Europe, Israel wants to end the Russian war against Ukraine. As Israel’s Prime Minister Naftali Bennett himself admits, it is unlikely that these efforts will be crowned with success. Nevertheless, he completed a veritable marathon of travel and telephone calls over the weekend to not let the opportunity, however small it may be, pass by.

The situation in Ukraine is getting worse with each passing day. In the past ten days, more than 1.5 million people have fled, according to the United Nations (UN). The exodus is the fastest swelling refugee crisis in Europe since World War II, said UN Refugee Commissioner Filippo Grandi. EU Commission President Ursula von der Leyen expects several million refugees from Ukraine.

Spain can help Europe reduce its dependence on Russian gas. The country has a modern LNG receiving infrastructure with six regasification plants. One of the strengths of the Spanish natural gas system is the diversification of its supply sources, explains Isabel Cuesta Camacho. However, new pipelines are needed for transport to neighboring European countries.

Companies and industry associations from the healthcare sector are still analyzing the consequences of the West’s sanctions against Russia. While the export of goods and technologies for medical or pharmaceutical purposes is exempt from the EU sanctions, there are numerous risks that companies in both industries should prepare for. The consequences of the conflict could also be far-reaching for clinical trials.

In a guest article, former Spanish Foreign Minister Ana Palacio – together with academics Silvia Merler, Francesco Nicoli, and Simone Tagliapietra – addresses the question of how Europe can best manage the sanctions against Russia. For them, it is clear that the European Union can no longer remain a passive spectator in world politics.

Your
Eugenie Ankowitsch

Spain: potential gas hub in Europe

Spain can play a key role in the European strategy to reduce its dependence on Russian gas. The country has a modern LNG receiving infrastructure with six regasification plants. In addition, there is an LNG plant from Sines in Portugal. The Iberian Peninsula accounts for one-third of regasification capacity and 25 percent of total European storage capacity.

One of the strengths of the Spanish natural gas system is the diversification of its supply sources. Spain imports only nine percent of its gas from Russia. Algeria is Spain’s largest gas supplier, with a 42.7 percent share in 2021 – 5.6 percent of which is LNG and the rest via pipelines. It is followed by the USA, Nigeria, Russia, and Qatar, all of which are LNG suppliers.

Gas from the Iberian Peninsula would not eliminate Europe’s heavy dependence on Russia but would be a step toward a better balance and is therefore of considerable strategic importance, said several experts consulted by Europe.Table. What is missing is sufficient transport capacity across the Pyrenees.

MIDCAT, the unfinished pipeline

Due to its geographical location, the Iberian Peninsula has only limited connections with the rest of the European market: There are only two gas pipelines to France and two others connecting Spain with Portugal. Therefore, greater efforts are needed to integrate the electricity and gas markets in Europe. According to the Spanish gas association Sedigas, the EU is primarily responsible for facilitating the development of these connections.

Gas export capacity from Spain to France is currently only seven billion cubic meters per year via the Larrau and Irún Basque pipelines. Total demand in Europe is 500 billion cubic meters per year, of which about 170 billion cubic meters are met by Russian gas.

Sedigas stresses that export capacity to Europe would double with the MIDCAT project – the unfinished gas pipeline between Spain and France through Catalonia. The project failed in January 2019 due to opposition from market and competition regulators. The pipeline was not profitable in the medium term, they argued. “Security of supply did not enter the analysis as one of the main variables; the geostrategic importance of the MIDCAT project for the EU was not taken into account in 2019,” says a Sedigas spokesperson.

Strategic solution for the energy problem

In an interview with Spanish television on February 28, Prime Minister Pedro Sánchez said that Europe should not be 40 percent dependent on a single supplier, namely Putin’s Russia, as this would jeopardize European security. Sánchez pointed out that a natural gas connection to Europe must be considered without losing sight of the Spanish and European commitment to decarbonization and the use of renewable energy. In this context, he stressed that Spain would be willing to resume the MIDCAT project – with the participation of France. In this case, according to Sánchez, it should be an infrastructure prepared to transport renewable gases such as hydrogen in the future.

The six LNG regasification plants are located in Barcelona, Sagunto, Cartagena, Huelva, Mugardos, and Bilbao and have a total storage capacity of 3,316,500 cubic meters of LNG (25 tankers). “This infrastructure would not only make it possible to respond to current demand in the medium term,” Sedigas said. In the long term, renewable or low-carbon gases produced in Spain, Portugal, or even North Africa could be transported to Central and Northern Europe with the help of a pipeline.

Utilization cap far from reached

“The gas processing capacity of the Spanish regasification plants is 6,862,800 cubic meters per hour. In recent years, their utilization rate has been below 50 percent. This means that production can be increased significantly,” explains José María Yusta, a professor at the University of Zaragoza who specializes in energy markets. From his point of view, however, on the one hand, countries such as the USA, Algeria, or Qatar would have to increase their gas production considerably, and on the other hand, more regasification terminals would be needed in Europe.

In 2021, the US was the largest source of LNG in Europe, accounting for 26 percent of all LNG imports from EU member states and the UK, followed by Qatar at 24 percent and Russia at 20 percent. According to Spain’s Ministry for the Ecological Transition, 34.6 percent of all gas arriving in Spain in January came from the US, surpassing imports from Algeria. In just four months, the US has doubled its share of the Spanish gas market and will become a major gas importer for Europe this year.

Energy supply secured in Spain

According to Enagás, the Spanish transmission system operator for natural gas, Spain’s gas supply is secure for the coming months. In March, 29 LNG tankers are scheduled to be unloaded at Spanish regasification facilities. As a preventive measure, at the end of February the company decided to auction four more extraordinary slots, destined for both domestic demand and exports. Currently, the Spanish gas network has more contracted natural gas capacity than in previous winters at the same time. Isabel Cuesta Camacho

Russia sanctions also affect healthcare industry

By

Eugenie Ankowitsch

Companies and industry associations are still analyzing the consequences of the West’s sanctions against Russia. The German Medical Technology Association (BVMed), for example, immediately set up a crisis team for its members to “observe and analyze the situation and the effects on the medical technology industry and initiate necessary measures“. The German Medicines Manufacturers’ Association (BAH) also says it is in the process of gathering information.

It is now clear that the export of goods and technologies for medical or pharmaceutical purposes is exempt from EU sanctions. Accordingly, these are only subject to a notification and, if necessary, also a licensing requirement by the competent export authority – in Germany, the Federal Office for Economic Affairs and Export Control (BAFA). Nevertheless, the unprecedented sanctions against Russia are also likely to affect companies in both sectors directly or indirectly, some more, others less.

Companies with strong Russian business particularly affected

Several large pharmaceutical companies are represented in Ukraine and Russia, including AbbVie, Merck, Sharpe & Dohme, GlaxoSmithKline, the Swiss companies Roche and Novartis, and the French Sanofi Group. Russia and Ukraine are also important markets for the German pharmaceutical manufacturer Stada, based in Bad Vilbel in Hesse. The globally active pharmaceutical company has a network of local production sites there and has continuously expanded its business in the region in recent years.

Two years ago, Stada acquired the pharmaceuticals division of the Ukrainian company Biopharma, which has over 300 employees and a production facility in the greater Kiev area. In Russia, the company employs around 2100 people. According to the company’s own information, the business in Russia contributes around 15 percent, and the business in Ukraine less than two percent to Stada’s total sales.

The medium-sized pharmaceutical company Wörwag from Böblingen, which generates around 15 percent of its total sales of €270 million in Russia, is now also facing major challenges. Last year, the company was able to increase its sales in Russia by 20 percent, the company announced just a few days before the Russian invasion of Ukraine. The company wanted to expand further.

These plans are now being pushed into the background in view of the war in Ukraine. The biggest concern is now for the about 40 employees in Ukraine, as the company told “Welt online”. From an economic point of view, those responsible are primarily concerned about three major issues: In addition to the sanctions imposed by the West and the expected counter-sanctions, the management has to deal with possible capital controls and the probable loss of purchasing power locally.

Massive supply chain disruption

Wörwag is not alone with these problems. Companies in the healthcare industry fear indirect consequences, such as rising costs for energy and raw materials or disrupted supply chains, for example, due to logistics problems caused by blocked transport routes. Many supply chains are already interrupted, Wörwag complains. The company’s trucks, which were headed for Georgia and other countries, would not get anywhere and were stuck in Odessa.

Medtech companies are also likely to face similar problems. The industry has already been held back for two years by the COVID-19 pandemic, but also by a shortage of raw materials, supply bottlenecks, and high freight costs.

From the point of view of representatives of both industries, the disconnection of some Russian banks from the Swift system poses an immediate threat to the processing of payment and business transactions. In principle, it affects all companies that maintain business relations with Russian companies or are active in Russia themselves. In an emergency, the companies will simply no longer be able to get the revenues out of the country.

The devaluation of the ruble and the resulting lower purchasing power in Russia should also not be forgotten. Currently, one dollar costs just under 114 rubles. Less than two weeks ago, it was 84 rubles. According to the Russian Central Bank, inflation is at 8.7 percent. This drastically reduces the market potential for companies.

Maintaining supply

Given the challenges, BVMed emphasized that people and healthcare systems in all parts of the world must continue to be supplied with medical products and technologies without interruption. “The main task of the medtech industry is to provide modern medical solutions to patients and healthcare systems around the world. This mission must also include medical care in conflict and crisis areas,” says BVMed CEO and board member Marc-Pierre Möll.

Not all representatives of the healthcare industry agree with this line. Some biotech companies want to join the West’s sanctions. In a recently published “Call to the Business Community” in several languages, the initiators write: “We, leaders in the life sciences industry, are appalled by the unprovoked war started by Russia against its neighbor Ukraine. (…) We must take action to make clear our abhorrence of Russia’s actions. Immediate and complete economic disengagement is required. Accordingly, we call on all members of our industry, and others, to cease all business involvement in Russia.” Representatives of more than 100 primarily US biotech companies have signed the call to date.

Clinical studies in danger

Biotech, but also research-based pharmaceutical companies have to deal with the war in Ukraine for another reason. A number of clinical trials are being conducted in Russia, Ukraine, and other Eastern European countries. Around 250 active studies on active substances and medical devices are listed in the clinicaltrials.gov database of the US Food and Drug Administration (FDA), some of which are currently being conducted in Ukraine.

The British pharmaceutical developer GlaxoSmithKline is testing its drug candidate otilimab for the treatment of rheumatoid arthritis in a Phase 3 study in 24 Ukrainian facilities, for example. The active ingredient was developed at Morphosys in Planegg, Bavaria.

Morphosys is currently conducting two major clinical trials itself, partly in Ukraine. A phase 2 study is looking at a compound that is intended to help patients with IgA nephropathy, an autoimmune disease of the kidneys. In a Phase 3 trial, the anti-CD19 monoclonal antibody tafasitamab is being tested for its efficacy in combination with lenalidomide and chemotherapy in diffuse large B-cell lymphoma. Eleven of the sites are in Ukraine. Darmstadt, Germany-based drugmaker Merck is currently conducting 13 studies in Ukraine and/or Russia, according to the company’s own statements.

The impact of the conflict on clinical trials could be far-reaching. However, all companies emphasized that the safety and well-being of the employees on site is the top priority. In addition, everything is being done to ensure the continuous supply of patients with the appropriate medicines.

Ukraine: Bennett wants to continue mediating

Israel will continue trying to mediate between Russia and Ukraine even if success seems unlikely, Prime Minister Naftali Bennett said on Sunday after returning from surprise talks with Russian President Vladimir Putin. The two leaders spoke again by phone on Sunday, the Kremlin said, and discussed Bennett’s “most recent contacts with leaders of a number of countries”. A spokesman for Bennett confirmed the phone call. Bennett also spoke on the phone with German Chancellor Olaf Scholz and French President Emmanuel Macron. On Sunday, Bennett also spoke with Ukrainian President Volodymyr Zelenskiy for the third time in 24 hours.

Bennett is the first top Western politician to visit Putin in Moscow since the war began. He then traveled on to Berlin and consulted with Scholz. Bennett said he made the trips with the consent of all parties. Israel will continue to try to mediate between Russia and Ukraine, even if success seems unlikely, the Israeli prime minister said Sunday.

Ukraine has requested Israel as a mediator

“We will continue to assist wherever this is requested, even if the chances are not great,” Bennett said. “The moment there is even a small opening, and we have the access to all sides and the capability, I see it as a moral duty to make every attempt.” Ukraine has requested that Israel serve as intermediary, citing the government’s good relations with both Kiev and Moscow.

Israel has condemned the Russian invasion of Ukraine, expressed solidarity with Kiev, and sent humanitarian aid. But Bennett has not met Ukrainian requests for military assistance and has kept channels open to Russia, with which Israel coordinates its operations against Iranian deployments in Syria.

A meeting of US and Israeli foreign ministers Antony Blinken and Jair Lapid is scheduled for Monday in Riga. rtr/dpa

Several million refugees expected from Ukraine

More than 1.5 million refugees from Ukraine have crossed into neighboring countries in the space of 10 days, the fastest growing refugee crisis in Europe since World War II, UN High Commissioner for Refugees Filippo Grandi said via Twitter on Sunday. Poland’s roughly 500-kilometer border with Ukraine processed 129,000 people on Saturday alone, more than ever before in a single day.

Russia’s war against Ukraine will result in several million refugees, according to EU Commission President Ursula von der Leyen. She recalled on Saturday after talks with the Spanish government in Madrid that the EU states had decided to grant people protection for at least a year with as little red tape as possible. Among other things, they are also guaranteed access to the labor market, education, and health care.

Scholz praises European solidarity

On Sunday, German Chancellor Olaf Scholz (SPD) praised European solidarity with war refugees from Ukraine after his meeting with von der Leyen. “It is good and not to be taken for granted that all EU states are taking in children, women, and men together, quickly and unbureaucratically,” Scholz said via Twitter on Sunday. He said it was clear that Europe was sticking together. “We help those who seek refuge from war together. And we stick together.”

Von der Leyen subsequently spoke of a “good meeting”. Both sides would work “together on the humanitarian situation, diplomatic initiatives, sanctions, and energy security,” the Commission President tweeted. The European summit in mid-March will send “important signals” of European unity and strength, von der Leyen announced.

Migration researcher Gerald Knaus believes it is conceivable that a total of ten million people will flee Ukraine. “Putin’s warfare in Chechnya has led to a quarter of the Chechens being displaced. We have to prepare for that,” Knaus told Redaktionsnetzwerk Deutschland (Editor Network Germany), according to an advance report. “A quarter of Ukrainians would be equivalent to ten million people.” dpa/rtr

US and Europe discuss Russian oil import freeze

The US government is consulting with its European allies on a potential import ban of oil from Russia. “We are now talking to our European partners and allies to look in a coordinated way at the prospect of banning the import of Russian oil,” US Secretary of State Antony Blinken told CNN. The debate also revolved around “making sure that there is still an appropriate supply of oil on world markets,” Blinken said. “That’s a very active discussion as we speak.” Blinken was joined on the CNN program during his visit to Moldova.

Because of the Russian war of aggression on Ukraine, pressure is growing on the US government to add an import ban on Russian oil to the punitive measures already imposed. US President Joe Biden has not explicitly ruled this out. However, the US government is concerned about already high gasoline prices. At the end of last year, Russia was the fourth most important country for imports of crude oil and petroleum products – behind Canada, Mexico, and Saudi Arabia – according to US authorities. Imports from Russia accounted for nearly five percent of all US imports in that category.

The new chairman of the Munich Security Conference, Christoph Heusgen, has also called for an embargo on energy imports from Russia. “With the way Putin is proceeding, we should now also consider an embargo on oil and gas supplies,” Heusgen told ARD’s Europe magazine on Sunday. “What we could do, we should do.” He added: “Our country, the people who are very solidary with the Ukrainians, they would also go along with that if it got a little colder in your living room.” dpa

LNG terminal for Brunsbüttel: Federal government has 50 percent stake

The German government wants to take a 50 percent stake in the first operating company for a German terminal for importing liquefied natural gas (LNG). It is necessary to “reduce dependence on Russian imports as quickly as possible; at the latest, Russia’s war of aggression against Ukraine makes this imperative,” Economics Minister Robert Habeck (Greens) is quoted as saying in a statement from the Federal Ministry for Economic Affairs and Climate Action.

Accordingly, the project partners of the LNG terminal in Brunsbüttel, Schleswig-Holstein, signed a “Memorandum of Understanding” on Friday. Under the agreement, the German government will hold a 50 percent stake via the development bank KfW, while the Dutch gas grid operator Gasunie, which is owned by the Dutch government, will hold a 40 percent stake, and the German energy group RWE will hold the remaining ten percent. Gasunie will be the operator.

Eight billion cubic meters annually

Initially, it is planned to regasify eight billion cubic meters of LNG per year in Brunsbüttel. This would make it possible “to obtain natural gas for the German market from regions that cannot be reached by gas pipelines,” the ministry explained. In perspective, however, the terminal in Brunsbüttel is to be converted for the import of green hydrogen derivatives such as ammonia. KfW stressed that this would make the terminal “a pioneer on the way to a climate-neutral energy industry.” Environmentalists are critical of LNG because relying on gas would postpone the achievement of climate targets.

The federal ministry does not give a specific time frame for completion but promises to “implement the project as quickly as possible.” Schleswig-Holstein’s Minister President Daniel Günther (CDU) said on Saturday that he expects construction to take about three years. On the other hand, Economics Minister Bernd Buchholz (FDP) estimated the construction phase on Saturday at four to five years. Both welcomed the latest agreement.

It is clear that the road to the first liquefied gas delivery in Brunsbüttel is still long. The project could be delayed by lawsuits filed by environmental associations. Legal steps could be initiated by Environmental Action Germany (Deutsche Umwelthilfe), for example. It had already made it clear in 2019 that it did not consider the project to be approvable as the location of an “incident operation” – i.e., an operation in which hazardous substances are present in large quantities.

The project sponsor of the Brunsbüttel terminal is German LNG Terminal GmbH. It was previously also supported by the tank storage specialist Vopak from the Netherlands and Oiltanking GmbH, a subsidiary of Hamburg-based Marquard & Bahls AG. Both will leave the shareholder group by May 2022 at the latest, as German LNG announced on Saturday: “The previous shareholders have come to the unanimous conclusion that Gasunie is the best partner for the German government.” dpa

Gazprom: Russian gas continues to flow

“Gazprom carries out the supply of Russian gas for transit through the territory of Ukraine in the regular scale,” a Gazprom spokesman Sergei Kupriyanov was quoted as saying by Russian news agency Interfax on Sunday. Some 109.5 million cubic meters of gas were scheduled to flow to Europe on Sunday.

During the fighting in Ukraine, pipelines in six areas have been damaged, cutting off hundreds of thousands of people from the gas supply, the Ukrainian news agency, UNIAN, quoted the operators of Ukraine’s gas-transit system as saying. Sixteen gas distribution stations in Ukraine, including those in areas around Kharkiv, Kiev, Zaporizhzhya, Donetsk, and Luhansk, have stopped working.

Russian gas supplies through Yamal pipeline fluctuate strongly

According to a network operator, the Yamal pipeline repeatedly experiences large fluctuations in natural gas deliveries from Russia to Germany. At the compressor station Mallnow (Brandenburg), the gas flows stopped on Friday, as data of the Kassel network operator Gascade on the preliminary load flow show. Flows to Germany via Mallnow were recorded at just over 100 kilowatt-hours per hour in the morning, compared with around 13.5 million kilowatt-hours per hour overnight. By Friday morning, no deliveries were indicated at all. The Yamal pipeline runs from Russia through Poland to Germany and is an important artery for energy supplies.

A Gascade spokeswoman in Kassel said that the flows had already “varied greatly from day to day” in recent weeks. She did not comment on the background. A spokeswoman for the Federal Ministry of Economics emphasized on request that security of supply continues to be guaranteed and that the situation is being monitored very closely. Although there are fluctuations on the Yamal pipeline, “according to our information, the gas deliveries via Nord Stream 1 and the Ukraine transit currently continue to take place without fluctuations“.

Study: Europe could get by without Russian gas

Under certain conditions, Europe could get by without Russian natural gas next winter. This is the conclusion of a study presented on Friday by the consulting firm Aurora Energy Research. The analysts assume a gap of 109 billion cubic meters of natural gas in this case, which would correspond to 38 percent of all planned gas deliveries to the EU. This gap would have to be filled by other supplies and consumption cuts, they said.

Alternative supplies could be increased through a combination of more liquefied natural gas and pipeline imports and more domestic natural gas production, a statement said. Gas storage would also play an important role. It would be helpful if storage facilities were 90 percent full at the start of the coming winter. Based on current gas prices, analysts expect this to cost in the region of €60 to €100 billion. Strong government intervention would be required for storage.

Depending on storage levels, gas demand in various sectors of the economy would have to be reduced to a greater or lesser extent. For example, the planned shutdown of nuclear and coal-fired power plants with a total capacity of 25 gigawatts could be delayed, which would offset around 12 billion cubic meters of gas consumption by gas-fired power plants. However, coal demand and consequently CO2 emissions would rise accordingly.

However, if Russian coal supplies were also halted, this would pose a “significant challenge” for coal-fired power plant operators, the study said. Households could also reduce gas consumption through moderate behavioral changes. dpa

How Europe can sustain Russia sanctions

By Ana Palacio, Silvia Merler, Francesco Nicoli and Simone Tagliapietra

The COVID-19 crisis offers important lessons in this regard. The intuition behind Europe’s response to the pandemic was that a common, symmetric, external shock to economic policymaking called for common, internally coherent, and consensual solutions. This translated into a political agreement to create a centralized spending initiative financed with funds raised by the European Commission. The new Recovery and Resilience Facility provided EU member states with the means – including through fiscal transfers – to respond to the health crisis and its economic consequences.

In the face of Putin’s blitz, Europe urgently needs a similar mechanism to finance investment in its long-term safety, and to help member states bear the economic cost of enacting meaningful sanctions against Russia. The steps needed to secure Europe geopolitically will be costly, and they will go beyond simply supporting our aging military forces.

Part of the cost will stem from the effects of sanctions, and part from the need to adapt to the new geopolitical environment. Not all EU members have enough fiscal capacity to absorb these costs. Some (such as Italy) have much higher levels of public debt, and others (such as Germany) are more exposed to the rebound effects of sanctions.

Skyrocketing gas and raw material prices

Moreover, no EU member can feasibly pursue rapid and full diversification away from Russian gas. As former Russian President Dmitri Medvedev has threatened, Europeans face the prospect of skyrocketing gas prices. And with Ukraine and Russia together accounting for almost 30 percent of global wheat exports, food also will be affected worldwide – a problem compounded by an increase in the price of fertilizers, of which Russia is a major producer.

The downside risks to the economy will therefore include new inflationary pressures on top of those associated with the post-pandemic reopening. Facing the specter of stagflation, the European Central Bank may feel more pressure to tighten monetary policy. If so, the expectation of rate increases might in turn force some countries into fiscal tightening, which would render meaningful additional security spending all but impossible.

European solidarity needed

Nonetheless, a united Europe is needed now more than ever to maintain sufficiently severe sanctions against Russia, and to mitigate the short-term pain from Russian counter-sanctions. With European gas storage facilities still 30% full, and with the possibility of receiving additional liquefied natural gas (LNG), Europe can survive the winter even with an interruption of all Russian gas flows. But to manage this worst-case scenario, European countries will need to show solidarity by sharing scarce resources with those most in need, and by extending EU financial support to the most-affected countries.

After that, two more measures will be needed to ensure longer-term solidarity on energy issues. First, EU countries must (finally) build the gas interconnections that are needed to make the EU energy market more flexible and resilient to shocks. For example, pipelines connecting Spain and France would enable the rest of Europe to tap into Iberia’s large LNG infrastructure.

Second, EU countries must turn gas storage into a strategic asset. The companies that own storage sites should be required to fill them up ahead of winter, and EU member states should consider developing a regional strategic gas storage system like the US Strategic Petroleum Reserve.

Distribution mechanism for war refugees necessary

Europe also needs to prepare itself to welcome war refugees. A mechanism will be needed for distributing potentially millions of refugees within the Union, and for supporting host countries financially. One possible blueprint is the EU’s Support to mitigate Unemployment Risks in an Emergency (SURE) initiative, which was rolled out during the pandemic to reinforce national social-security systems.

Moreover, Western companies and financial institutions hit hard by the effects of the war and new sanctions must not suffer liquidity crises. The Russian economy is likely to be abruptly disconnected from Western markets, and the Ukrainian economy will deteriorate fast. Many Western companies will be exposed to these developments and will need time and support to refocus their assets and business plans.

Europe’s response here should include activating new state aid exceptions under articles 107(3) and 109 of the Treaty on the Functioning of the European Union. But it must not stop there. As in the COVID-19 crisis, a straightforward suspension of the state-aid framework could produce a scenario in which rich countries are able to shield their markets much more than poorer countries can, undermining competition in the internal market. Europe therefore needs a facility to provide equal backing to all affected companies and financial institutions.

Renew military infrastructure

Finally, we cannot shy away from updating the aging European military infrastructure. In the past, EU countries have benefited from joint military procurement on specific projects through the European Defence Agency. This approach now needs to be scaled up substantially and backed by common resources, with guidelines that all assets purchased be used to reform and modernize the national units participating in EU-level defense through EU Battlegroup or NATO assignments.

The COVID-19 Recovery and Resilience Facility was successful because it accounted for different interests in the name of fighting a common problem. It should now be augmented with a security facility to provide financial support for the difficult measures that will be needed to sustain a united front vis-à-vis Russia. In addition to loans to deal with short-term issues such as illiquidity, there should be common spending to finance structural adaptation over the medium term, especially to support defense spending, refugee resettlement, and the energy transition.

Accordingly, the facility should be financed with EU bonds, which should be eligible for purchase by the ECB – thus also serving as a much-needed EU safe asset.

The Russia-Ukraine crisis will require rethinking how European countries allocate their budgets and govern key sectors, some of which are only loosely connected with defense and security. This transition is not a choice, but rather a necessary response to dark times.

Ana Palacio is a former minister of foreign affairs of Spain. Silvia Merler, an adjunct lecturer at the Johns Hopkins University School of Advanced International Studies, is Head of ESG and Policy Research at Algebris Investments. Francesco Nicoli is Professor of Political Economy at Ghent University and an affiliate fellow at the University of Amsterdam. Simone Tagliapietra is a senior fellow at Bruegel and an adjunct professor at Università Cattolica del Sacro Cuore.

EUROPE.TABLE EDITORS

Till
Hoppe

Charlotte
Wirth

Falk
Steiner

Timo
Landenberger

Corinna
Visser

Lukas
Knigge

Eric
Bonse

Sarah
Schaefer

Manuel
Berkel

Lisa-Martina
Klein

Markus
Grabitz

Stephan
Israel

Claire
Stam

Dear reader,

By acting as a neutral mediator in Europe, Israel wants to end the Russian war against Ukraine. As Israel’s Prime Minister Naftali Bennett himself admits, it is unlikely that these efforts will be crowned with success. Nevertheless, he completed a veritable marathon of travel and telephone calls over the weekend to not let the opportunity, however small it may be, pass by.

The situation in Ukraine is getting worse with each passing day. In the past ten days, more than 1.5 million people have fled, according to the United Nations (UN). The exodus is the fastest swelling refugee crisis in Europe since World War II, said UN Refugee Commissioner Filippo Grandi. EU Commission President Ursula von der Leyen expects several million refugees from Ukraine.

Spain can help Europe reduce its dependence on Russian gas. The country has a modern LNG receiving infrastructure with six regasification plants. One of the strengths of the Spanish natural gas system is the diversification of its supply sources, explains Isabel Cuesta Camacho. However, new pipelines are needed for transport to neighboring European countries.

Companies and industry associations from the healthcare sector are still analyzing the consequences of the West’s sanctions against Russia. While the export of goods and technologies for medical or pharmaceutical purposes is exempt from the EU sanctions, there are numerous risks that companies in both industries should prepare for. The consequences of the conflict could also be far-reaching for clinical trials.

In a guest article, former Spanish Foreign Minister Ana Palacio – together with academics Silvia Merler, Francesco Nicoli, and Simone Tagliapietra – addresses the question of how Europe can best manage the sanctions against Russia. For them, it is clear that the European Union can no longer remain a passive spectator in world politics.

Your
Eugenie Ankowitsch

Spain: potential gas hub in Europe

Spain can play a key role in the European strategy to reduce its dependence on Russian gas. The country has a modern LNG receiving infrastructure with six regasification plants. In addition, there is an LNG plant from Sines in Portugal. The Iberian Peninsula accounts for one-third of regasification capacity and 25 percent of total European storage capacity.

One of the strengths of the Spanish natural gas system is the diversification of its supply sources. Spain imports only nine percent of its gas from Russia. Algeria is Spain’s largest gas supplier, with a 42.7 percent share in 2021 – 5.6 percent of which is LNG and the rest via pipelines. It is followed by the USA, Nigeria, Russia, and Qatar, all of which are LNG suppliers.

Gas from the Iberian Peninsula would not eliminate Europe’s heavy dependence on Russia but would be a step toward a better balance and is therefore of considerable strategic importance, said several experts consulted by Europe.Table. What is missing is sufficient transport capacity across the Pyrenees.

MIDCAT, the unfinished pipeline

Due to its geographical location, the Iberian Peninsula has only limited connections with the rest of the European market: There are only two gas pipelines to France and two others connecting Spain with Portugal. Therefore, greater efforts are needed to integrate the electricity and gas markets in Europe. According to the Spanish gas association Sedigas, the EU is primarily responsible for facilitating the development of these connections.

Gas export capacity from Spain to France is currently only seven billion cubic meters per year via the Larrau and Irún Basque pipelines. Total demand in Europe is 500 billion cubic meters per year, of which about 170 billion cubic meters are met by Russian gas.

Sedigas stresses that export capacity to Europe would double with the MIDCAT project – the unfinished gas pipeline between Spain and France through Catalonia. The project failed in January 2019 due to opposition from market and competition regulators. The pipeline was not profitable in the medium term, they argued. “Security of supply did not enter the analysis as one of the main variables; the geostrategic importance of the MIDCAT project for the EU was not taken into account in 2019,” says a Sedigas spokesperson.

Strategic solution for the energy problem

In an interview with Spanish television on February 28, Prime Minister Pedro Sánchez said that Europe should not be 40 percent dependent on a single supplier, namely Putin’s Russia, as this would jeopardize European security. Sánchez pointed out that a natural gas connection to Europe must be considered without losing sight of the Spanish and European commitment to decarbonization and the use of renewable energy. In this context, he stressed that Spain would be willing to resume the MIDCAT project – with the participation of France. In this case, according to Sánchez, it should be an infrastructure prepared to transport renewable gases such as hydrogen in the future.

The six LNG regasification plants are located in Barcelona, Sagunto, Cartagena, Huelva, Mugardos, and Bilbao and have a total storage capacity of 3,316,500 cubic meters of LNG (25 tankers). “This infrastructure would not only make it possible to respond to current demand in the medium term,” Sedigas said. In the long term, renewable or low-carbon gases produced in Spain, Portugal, or even North Africa could be transported to Central and Northern Europe with the help of a pipeline.

Utilization cap far from reached

“The gas processing capacity of the Spanish regasification plants is 6,862,800 cubic meters per hour. In recent years, their utilization rate has been below 50 percent. This means that production can be increased significantly,” explains José María Yusta, a professor at the University of Zaragoza who specializes in energy markets. From his point of view, however, on the one hand, countries such as the USA, Algeria, or Qatar would have to increase their gas production considerably, and on the other hand, more regasification terminals would be needed in Europe.

In 2021, the US was the largest source of LNG in Europe, accounting for 26 percent of all LNG imports from EU member states and the UK, followed by Qatar at 24 percent and Russia at 20 percent. According to Spain’s Ministry for the Ecological Transition, 34.6 percent of all gas arriving in Spain in January came from the US, surpassing imports from Algeria. In just four months, the US has doubled its share of the Spanish gas market and will become a major gas importer for Europe this year.

Energy supply secured in Spain

According to Enagás, the Spanish transmission system operator for natural gas, Spain’s gas supply is secure for the coming months. In March, 29 LNG tankers are scheduled to be unloaded at Spanish regasification facilities. As a preventive measure, at the end of February the company decided to auction four more extraordinary slots, destined for both domestic demand and exports. Currently, the Spanish gas network has more contracted natural gas capacity than in previous winters at the same time. Isabel Cuesta Camacho

Russia sanctions also affect healthcare industry

By

Eugenie Ankowitsch

Companies and industry associations are still analyzing the consequences of the West’s sanctions against Russia. The German Medical Technology Association (BVMed), for example, immediately set up a crisis team for its members to “observe and analyze the situation and the effects on the medical technology industry and initiate necessary measures“. The German Medicines Manufacturers’ Association (BAH) also says it is in the process of gathering information.

It is now clear that the export of goods and technologies for medical or pharmaceutical purposes is exempt from EU sanctions. Accordingly, these are only subject to a notification and, if necessary, also a licensing requirement by the competent export authority – in Germany, the Federal Office for Economic Affairs and Export Control (BAFA). Nevertheless, the unprecedented sanctions against Russia are also likely to affect companies in both sectors directly or indirectly, some more, others less.

Companies with strong Russian business particularly affected

Several large pharmaceutical companies are represented in Ukraine and Russia, including AbbVie, Merck, Sharpe & Dohme, GlaxoSmithKline, the Swiss companies Roche and Novartis, and the French Sanofi Group. Russia and Ukraine are also important markets for the German pharmaceutical manufacturer Stada, based in Bad Vilbel in Hesse. The globally active pharmaceutical company has a network of local production sites there and has continuously expanded its business in the region in recent years.

Two years ago, Stada acquired the pharmaceuticals division of the Ukrainian company Biopharma, which has over 300 employees and a production facility in the greater Kiev area. In Russia, the company employs around 2100 people. According to the company’s own information, the business in Russia contributes around 15 percent, and the business in Ukraine less than two percent to Stada’s total sales.

The medium-sized pharmaceutical company Wörwag from Böblingen, which generates around 15 percent of its total sales of €270 million in Russia, is now also facing major challenges. Last year, the company was able to increase its sales in Russia by 20 percent, the company announced just a few days before the Russian invasion of Ukraine. The company wanted to expand further.

These plans are now being pushed into the background in view of the war in Ukraine. The biggest concern is now for the about 40 employees in Ukraine, as the company told “Welt online”. From an economic point of view, those responsible are primarily concerned about three major issues: In addition to the sanctions imposed by the West and the expected counter-sanctions, the management has to deal with possible capital controls and the probable loss of purchasing power locally.

Massive supply chain disruption

Wörwag is not alone with these problems. Companies in the healthcare industry fear indirect consequences, such as rising costs for energy and raw materials or disrupted supply chains, for example, due to logistics problems caused by blocked transport routes. Many supply chains are already interrupted, Wörwag complains. The company’s trucks, which were headed for Georgia and other countries, would not get anywhere and were stuck in Odessa.

Medtech companies are also likely to face similar problems. The industry has already been held back for two years by the COVID-19 pandemic, but also by a shortage of raw materials, supply bottlenecks, and high freight costs.

From the point of view of representatives of both industries, the disconnection of some Russian banks from the Swift system poses an immediate threat to the processing of payment and business transactions. In principle, it affects all companies that maintain business relations with Russian companies or are active in Russia themselves. In an emergency, the companies will simply no longer be able to get the revenues out of the country.

The devaluation of the ruble and the resulting lower purchasing power in Russia should also not be forgotten. Currently, one dollar costs just under 114 rubles. Less than two weeks ago, it was 84 rubles. According to the Russian Central Bank, inflation is at 8.7 percent. This drastically reduces the market potential for companies.

Maintaining supply

Given the challenges, BVMed emphasized that people and healthcare systems in all parts of the world must continue to be supplied with medical products and technologies without interruption. “The main task of the medtech industry is to provide modern medical solutions to patients and healthcare systems around the world. This mission must also include medical care in conflict and crisis areas,” says BVMed CEO and board member Marc-Pierre Möll.

Not all representatives of the healthcare industry agree with this line. Some biotech companies want to join the West’s sanctions. In a recently published “Call to the Business Community” in several languages, the initiators write: “We, leaders in the life sciences industry, are appalled by the unprovoked war started by Russia against its neighbor Ukraine. (…) We must take action to make clear our abhorrence of Russia’s actions. Immediate and complete economic disengagement is required. Accordingly, we call on all members of our industry, and others, to cease all business involvement in Russia.” Representatives of more than 100 primarily US biotech companies have signed the call to date.

Clinical studies in danger

Biotech, but also research-based pharmaceutical companies have to deal with the war in Ukraine for another reason. A number of clinical trials are being conducted in Russia, Ukraine, and other Eastern European countries. Around 250 active studies on active substances and medical devices are listed in the clinicaltrials.gov database of the US Food and Drug Administration (FDA), some of which are currently being conducted in Ukraine.

The British pharmaceutical developer GlaxoSmithKline is testing its drug candidate otilimab for the treatment of rheumatoid arthritis in a Phase 3 study in 24 Ukrainian facilities, for example. The active ingredient was developed at Morphosys in Planegg, Bavaria.

Morphosys is currently conducting two major clinical trials itself, partly in Ukraine. A phase 2 study is looking at a compound that is intended to help patients with IgA nephropathy, an autoimmune disease of the kidneys. In a Phase 3 trial, the anti-CD19 monoclonal antibody tafasitamab is being tested for its efficacy in combination with lenalidomide and chemotherapy in diffuse large B-cell lymphoma. Eleven of the sites are in Ukraine. Darmstadt, Germany-based drugmaker Merck is currently conducting 13 studies in Ukraine and/or Russia, according to the company’s own statements.

The impact of the conflict on clinical trials could be far-reaching. However, all companies emphasized that the safety and well-being of the employees on site is the top priority. In addition, everything is being done to ensure the continuous supply of patients with the appropriate medicines.

Ukraine: Bennett wants to continue mediating

Israel will continue trying to mediate between Russia and Ukraine even if success seems unlikely, Prime Minister Naftali Bennett said on Sunday after returning from surprise talks with Russian President Vladimir Putin. The two leaders spoke again by phone on Sunday, the Kremlin said, and discussed Bennett’s “most recent contacts with leaders of a number of countries”. A spokesman for Bennett confirmed the phone call. Bennett also spoke on the phone with German Chancellor Olaf Scholz and French President Emmanuel Macron. On Sunday, Bennett also spoke with Ukrainian President Volodymyr Zelenskiy for the third time in 24 hours.

Bennett is the first top Western politician to visit Putin in Moscow since the war began. He then traveled on to Berlin and consulted with Scholz. Bennett said he made the trips with the consent of all parties. Israel will continue to try to mediate between Russia and Ukraine, even if success seems unlikely, the Israeli prime minister said Sunday.

Ukraine has requested Israel as a mediator

“We will continue to assist wherever this is requested, even if the chances are not great,” Bennett said. “The moment there is even a small opening, and we have the access to all sides and the capability, I see it as a moral duty to make every attempt.” Ukraine has requested that Israel serve as intermediary, citing the government’s good relations with both Kiev and Moscow.

Israel has condemned the Russian invasion of Ukraine, expressed solidarity with Kiev, and sent humanitarian aid. But Bennett has not met Ukrainian requests for military assistance and has kept channels open to Russia, with which Israel coordinates its operations against Iranian deployments in Syria.

A meeting of US and Israeli foreign ministers Antony Blinken and Jair Lapid is scheduled for Monday in Riga. rtr/dpa

Several million refugees expected from Ukraine

More than 1.5 million refugees from Ukraine have crossed into neighboring countries in the space of 10 days, the fastest growing refugee crisis in Europe since World War II, UN High Commissioner for Refugees Filippo Grandi said via Twitter on Sunday. Poland’s roughly 500-kilometer border with Ukraine processed 129,000 people on Saturday alone, more than ever before in a single day.

Russia’s war against Ukraine will result in several million refugees, according to EU Commission President Ursula von der Leyen. She recalled on Saturday after talks with the Spanish government in Madrid that the EU states had decided to grant people protection for at least a year with as little red tape as possible. Among other things, they are also guaranteed access to the labor market, education, and health care.

Scholz praises European solidarity

On Sunday, German Chancellor Olaf Scholz (SPD) praised European solidarity with war refugees from Ukraine after his meeting with von der Leyen. “It is good and not to be taken for granted that all EU states are taking in children, women, and men together, quickly and unbureaucratically,” Scholz said via Twitter on Sunday. He said it was clear that Europe was sticking together. “We help those who seek refuge from war together. And we stick together.”

Von der Leyen subsequently spoke of a “good meeting”. Both sides would work “together on the humanitarian situation, diplomatic initiatives, sanctions, and energy security,” the Commission President tweeted. The European summit in mid-March will send “important signals” of European unity and strength, von der Leyen announced.

Migration researcher Gerald Knaus believes it is conceivable that a total of ten million people will flee Ukraine. “Putin’s warfare in Chechnya has led to a quarter of the Chechens being displaced. We have to prepare for that,” Knaus told Redaktionsnetzwerk Deutschland (Editor Network Germany), according to an advance report. “A quarter of Ukrainians would be equivalent to ten million people.” dpa/rtr

US and Europe discuss Russian oil import freeze

The US government is consulting with its European allies on a potential import ban of oil from Russia. “We are now talking to our European partners and allies to look in a coordinated way at the prospect of banning the import of Russian oil,” US Secretary of State Antony Blinken told CNN. The debate also revolved around “making sure that there is still an appropriate supply of oil on world markets,” Blinken said. “That’s a very active discussion as we speak.” Blinken was joined on the CNN program during his visit to Moldova.

Because of the Russian war of aggression on Ukraine, pressure is growing on the US government to add an import ban on Russian oil to the punitive measures already imposed. US President Joe Biden has not explicitly ruled this out. However, the US government is concerned about already high gasoline prices. At the end of last year, Russia was the fourth most important country for imports of crude oil and petroleum products – behind Canada, Mexico, and Saudi Arabia – according to US authorities. Imports from Russia accounted for nearly five percent of all US imports in that category.

The new chairman of the Munich Security Conference, Christoph Heusgen, has also called for an embargo on energy imports from Russia. “With the way Putin is proceeding, we should now also consider an embargo on oil and gas supplies,” Heusgen told ARD’s Europe magazine on Sunday. “What we could do, we should do.” He added: “Our country, the people who are very solidary with the Ukrainians, they would also go along with that if it got a little colder in your living room.” dpa

LNG terminal for Brunsbüttel: Federal government has 50 percent stake

The German government wants to take a 50 percent stake in the first operating company for a German terminal for importing liquefied natural gas (LNG). It is necessary to “reduce dependence on Russian imports as quickly as possible; at the latest, Russia’s war of aggression against Ukraine makes this imperative,” Economics Minister Robert Habeck (Greens) is quoted as saying in a statement from the Federal Ministry for Economic Affairs and Climate Action.

Accordingly, the project partners of the LNG terminal in Brunsbüttel, Schleswig-Holstein, signed a “Memorandum of Understanding” on Friday. Under the agreement, the German government will hold a 50 percent stake via the development bank KfW, while the Dutch gas grid operator Gasunie, which is owned by the Dutch government, will hold a 40 percent stake, and the German energy group RWE will hold the remaining ten percent. Gasunie will be the operator.

Eight billion cubic meters annually

Initially, it is planned to regasify eight billion cubic meters of LNG per year in Brunsbüttel. This would make it possible “to obtain natural gas for the German market from regions that cannot be reached by gas pipelines,” the ministry explained. In perspective, however, the terminal in Brunsbüttel is to be converted for the import of green hydrogen derivatives such as ammonia. KfW stressed that this would make the terminal “a pioneer on the way to a climate-neutral energy industry.” Environmentalists are critical of LNG because relying on gas would postpone the achievement of climate targets.

The federal ministry does not give a specific time frame for completion but promises to “implement the project as quickly as possible.” Schleswig-Holstein’s Minister President Daniel Günther (CDU) said on Saturday that he expects construction to take about three years. On the other hand, Economics Minister Bernd Buchholz (FDP) estimated the construction phase on Saturday at four to five years. Both welcomed the latest agreement.

It is clear that the road to the first liquefied gas delivery in Brunsbüttel is still long. The project could be delayed by lawsuits filed by environmental associations. Legal steps could be initiated by Environmental Action Germany (Deutsche Umwelthilfe), for example. It had already made it clear in 2019 that it did not consider the project to be approvable as the location of an “incident operation” – i.e., an operation in which hazardous substances are present in large quantities.

The project sponsor of the Brunsbüttel terminal is German LNG Terminal GmbH. It was previously also supported by the tank storage specialist Vopak from the Netherlands and Oiltanking GmbH, a subsidiary of Hamburg-based Marquard & Bahls AG. Both will leave the shareholder group by May 2022 at the latest, as German LNG announced on Saturday: “The previous shareholders have come to the unanimous conclusion that Gasunie is the best partner for the German government.” dpa

Gazprom: Russian gas continues to flow

“Gazprom carries out the supply of Russian gas for transit through the territory of Ukraine in the regular scale,” a Gazprom spokesman Sergei Kupriyanov was quoted as saying by Russian news agency Interfax on Sunday. Some 109.5 million cubic meters of gas were scheduled to flow to Europe on Sunday.

During the fighting in Ukraine, pipelines in six areas have been damaged, cutting off hundreds of thousands of people from the gas supply, the Ukrainian news agency, UNIAN, quoted the operators of Ukraine’s gas-transit system as saying. Sixteen gas distribution stations in Ukraine, including those in areas around Kharkiv, Kiev, Zaporizhzhya, Donetsk, and Luhansk, have stopped working.

Russian gas supplies through Yamal pipeline fluctuate strongly

According to a network operator, the Yamal pipeline repeatedly experiences large fluctuations in natural gas deliveries from Russia to Germany. At the compressor station Mallnow (Brandenburg), the gas flows stopped on Friday, as data of the Kassel network operator Gascade on the preliminary load flow show. Flows to Germany via Mallnow were recorded at just over 100 kilowatt-hours per hour in the morning, compared with around 13.5 million kilowatt-hours per hour overnight. By Friday morning, no deliveries were indicated at all. The Yamal pipeline runs from Russia through Poland to Germany and is an important artery for energy supplies.

A Gascade spokeswoman in Kassel said that the flows had already “varied greatly from day to day” in recent weeks. She did not comment on the background. A spokeswoman for the Federal Ministry of Economics emphasized on request that security of supply continues to be guaranteed and that the situation is being monitored very closely. Although there are fluctuations on the Yamal pipeline, “according to our information, the gas deliveries via Nord Stream 1 and the Ukraine transit currently continue to take place without fluctuations“.

Study: Europe could get by without Russian gas

Under certain conditions, Europe could get by without Russian natural gas next winter. This is the conclusion of a study presented on Friday by the consulting firm Aurora Energy Research. The analysts assume a gap of 109 billion cubic meters of natural gas in this case, which would correspond to 38 percent of all planned gas deliveries to the EU. This gap would have to be filled by other supplies and consumption cuts, they said.

Alternative supplies could be increased through a combination of more liquefied natural gas and pipeline imports and more domestic natural gas production, a statement said. Gas storage would also play an important role. It would be helpful if storage facilities were 90 percent full at the start of the coming winter. Based on current gas prices, analysts expect this to cost in the region of €60 to €100 billion. Strong government intervention would be required for storage.

Depending on storage levels, gas demand in various sectors of the economy would have to be reduced to a greater or lesser extent. For example, the planned shutdown of nuclear and coal-fired power plants with a total capacity of 25 gigawatts could be delayed, which would offset around 12 billion cubic meters of gas consumption by gas-fired power plants. However, coal demand and consequently CO2 emissions would rise accordingly.

However, if Russian coal supplies were also halted, this would pose a “significant challenge” for coal-fired power plant operators, the study said. Households could also reduce gas consumption through moderate behavioral changes. dpa

How Europe can sustain Russia sanctions

By Ana Palacio, Silvia Merler, Francesco Nicoli and Simone Tagliapietra

The COVID-19 crisis offers important lessons in this regard. The intuition behind Europe’s response to the pandemic was that a common, symmetric, external shock to economic policymaking called for common, internally coherent, and consensual solutions. This translated into a political agreement to create a centralized spending initiative financed with funds raised by the European Commission. The new Recovery and Resilience Facility provided EU member states with the means – including through fiscal transfers – to respond to the health crisis and its economic consequences.

In the face of Putin’s blitz, Europe urgently needs a similar mechanism to finance investment in its long-term safety, and to help member states bear the economic cost of enacting meaningful sanctions against Russia. The steps needed to secure Europe geopolitically will be costly, and they will go beyond simply supporting our aging military forces.

Part of the cost will stem from the effects of sanctions, and part from the need to adapt to the new geopolitical environment. Not all EU members have enough fiscal capacity to absorb these costs. Some (such as Italy) have much higher levels of public debt, and others (such as Germany) are more exposed to the rebound effects of sanctions.

Skyrocketing gas and raw material prices

Moreover, no EU member can feasibly pursue rapid and full diversification away from Russian gas. As former Russian President Dmitri Medvedev has threatened, Europeans face the prospect of skyrocketing gas prices. And with Ukraine and Russia together accounting for almost 30 percent of global wheat exports, food also will be affected worldwide – a problem compounded by an increase in the price of fertilizers, of which Russia is a major producer.

The downside risks to the economy will therefore include new inflationary pressures on top of those associated with the post-pandemic reopening. Facing the specter of stagflation, the European Central Bank may feel more pressure to tighten monetary policy. If so, the expectation of rate increases might in turn force some countries into fiscal tightening, which would render meaningful additional security spending all but impossible.

European solidarity needed

Nonetheless, a united Europe is needed now more than ever to maintain sufficiently severe sanctions against Russia, and to mitigate the short-term pain from Russian counter-sanctions. With European gas storage facilities still 30% full, and with the possibility of receiving additional liquefied natural gas (LNG), Europe can survive the winter even with an interruption of all Russian gas flows. But to manage this worst-case scenario, European countries will need to show solidarity by sharing scarce resources with those most in need, and by extending EU financial support to the most-affected countries.

After that, two more measures will be needed to ensure longer-term solidarity on energy issues. First, EU countries must (finally) build the gas interconnections that are needed to make the EU energy market more flexible and resilient to shocks. For example, pipelines connecting Spain and France would enable the rest of Europe to tap into Iberia’s large LNG infrastructure.

Second, EU countries must turn gas storage into a strategic asset. The companies that own storage sites should be required to fill them up ahead of winter, and EU member states should consider developing a regional strategic gas storage system like the US Strategic Petroleum Reserve.

Distribution mechanism for war refugees necessary

Europe also needs to prepare itself to welcome war refugees. A mechanism will be needed for distributing potentially millions of refugees within the Union, and for supporting host countries financially. One possible blueprint is the EU’s Support to mitigate Unemployment Risks in an Emergency (SURE) initiative, which was rolled out during the pandemic to reinforce national social-security systems.

Moreover, Western companies and financial institutions hit hard by the effects of the war and new sanctions must not suffer liquidity crises. The Russian economy is likely to be abruptly disconnected from Western markets, and the Ukrainian economy will deteriorate fast. Many Western companies will be exposed to these developments and will need time and support to refocus their assets and business plans.

Europe’s response here should include activating new state aid exceptions under articles 107(3) and 109 of the Treaty on the Functioning of the European Union. But it must not stop there. As in the COVID-19 crisis, a straightforward suspension of the state-aid framework could produce a scenario in which rich countries are able to shield their markets much more than poorer countries can, undermining competition in the internal market. Europe therefore needs a facility to provide equal backing to all affected companies and financial institutions.

Renew military infrastructure

Finally, we cannot shy away from updating the aging European military infrastructure. In the past, EU countries have benefited from joint military procurement on specific projects through the European Defence Agency. This approach now needs to be scaled up substantially and backed by common resources, with guidelines that all assets purchased be used to reform and modernize the national units participating in EU-level defense through EU Battlegroup or NATO assignments.

The COVID-19 Recovery and Resilience Facility was successful because it accounted for different interests in the name of fighting a common problem. It should now be augmented with a security facility to provide financial support for the difficult measures that will be needed to sustain a united front vis-à-vis Russia. In addition to loans to deal with short-term issues such as illiquidity, there should be common spending to finance structural adaptation over the medium term, especially to support defense spending, refugee resettlement, and the energy transition.

Accordingly, the facility should be financed with EU bonds, which should be eligible for purchase by the ECB – thus also serving as a much-needed EU safe asset.

The Russia-Ukraine crisis will require rethinking how European countries allocate their budgets and govern key sectors, some of which are only loosely connected with defense and security. This transition is not a choice, but rather a necessary response to dark times.

Ana Palacio is a former minister of foreign affairs of Spain. Silvia Merler, an adjunct lecturer at the Johns Hopkins University School of Advanced International Studies, is Head of ESG and Policy Research at Algebris Investments. Francesco Nicoli is Professor of Political Economy at Ghent University and an affiliate fellow at the University of Amsterdam. Simone Tagliapietra is a senior fellow at Bruegel and an adjunct professor at Università Cattolica del Sacro Cuore.