Economic security

Last Updated on Sunday, 9 July, 2023 at 10:12 am by Andre Camilleri

Last week, major media outlets were reporting about the head of the paramilitary group Wagner, Yevgeny Prigozhin, who seems to have turned against the modus operandi of the state military. He accused them of uncooperative actions. Prigozhin alleged that military ammunitions were not reaching his mercenaries, who are fighting in Ukraine along with the state military, to illegally capture additional territory.

If you may recall, I wrote about this paramilitary group a few weeks ago and summarised what is happening elsewhere around the globe, especially in Sudan. Frankly, the political and military destabilisation is not limited to Ukraine and the paramilitary group Wagner is established beyond the Russian territory. The economic repercussions of the war in Ukraine are wider and dreadfully complex. Needless to say, I am quite uncomfortable with the regional spillover effect. Having the head of the paramilitary group Wagner settled in Belarus, which is geographically closer to Kiev and in close proximity to tactical nuclear weapons, is obviously chilling.

Numerous commentators were cherishing what was happening in Russia to the point of stating that President Putin was hoisted by his own petard. Also, prior to the Foreign Affairs Council meeting, I even heard the High Representative stating that the monster created by President Vladimir Putin turned against him. When one examines the modus operandi of the paramilitary group and its raison d’etre it is obvious why they were created. In less than a decade they expanded their presence in numerous countries around the world, especially in Africa. A recent United Nations report outlined that the geographical footprint of the Wagner group, to name a few, expanded to Mali, the Central African Republic, Mozambique and Sudan.

Back in February 2022, I appealed for a diplomatic solution to avoid a war. And I did so simply because I truly believe in diplomatic relations away from military solutions. Regretfully, Russia and the West did not agree, and the former proceeded with Ukraine’s invasion. President Emmanuel Macron tried to broker a diplomatic solution, and so did Olaf Scholz. Sadly, the military and political situation is evolving into a regional one and the prolongation of the war is translating into additional sufferings. Ukrainians are globally displaced and Ukraine requires a mega billion budget for its reconstruction.

At the same time, people around the world are feeling the effects of the war, even here in Malta. Undoubtedly, inflation might take a little longer before it settles to pre-war levels. Presently, I am attending several village feast celebrations. We both love Maltese traditions. Also, it is a good opportunity to meet with people and listen to their concerns. Since I decided to start writing and expressing my opinion, as well as appearing on the media, people tend to recognise me. Nevertheless, I enjoy meeting with people as I learn from their experiences, especially on topics that at times we tend to overlook.

One of the most pressing and lingering problems in Europe is inflation. On the ground, people tend to mention that the increase in prices, especially to finance basic needs, like food and beverages including unprocessed food, are still relatively high. Recently, the IMF published a technical paper relating to the euro area inflation after the pandemic taking also into account last year’s energy shock. It transpired that companies managed to pass on to consumers the immediate increase in the import costs. Clearly, in the absence of government energy and fuel subsidies, inflation in Malta would have crippled our businesses and families down to the point of halting economic growth.

Hitherto, firms were able to adjust prices swiftly thereby shielding themselves from the increasing costs. Nonetheless, the increase in prices adversely effected wage earners, given that wage prices tend to be relatively sticky. Wage increases entail union negotiations and the cost-of-living adjustment applies a year later. Notably, passing on the costs to consumers does not mean that firms made a higher profit margin relative to the pre-pandemic and the pre-energy shock periods. Apparently additional data is required to be able to extract this information.

Certainly, the war in Ukraine, coupled with the weaponisation of economic dependencies, pushed the EU and other economic blocks to rethink globalisation. What we previously thought it was normal open market practices and liberalised international trade, we are now getting closer to protectionism to safeguard economic security and strategic autonomy. Due to security concerns, we must rethink how to avoid any future economic coercion.

Last year, I mentioned that food security as well as climate security will probably hit people to the point of migrating to other areas. Evidently, everything is revolving around security nowadays including energy security. In primary school we were taught to save for rainy days. It is clearly the same concept. We must reduce economic dependencies by mitigating security troubles to protect citizens just in case something happens. To counter the problem of multiple security risks, the HRVP, along with the EU Commission, published a paper on the way to best handle economic security, including outward investments as well as highly specialised technological exports that are crucial for the preservation of national security. Meanwhile, the HRVP explained that protecting one’s economic interests must come in tandem with preserving relations with other countries. The HRVP clarified that it is not a matter of mistrust but a matter of protecting the EU’s interest and hedging against future risks.

Surely, economic security problems were tested during the pandemic with shortages in the value chain and when Russia stopped supplying gas to the EU in response to the latter’s imposition of sanctions. Obviously, the complexity of sanctions slowed the imports of other unsanctioned products from Russia, resulting in higher prices to match increased demand. Additionally, the increase in prices, resulting from food shortages and the energy shock, tested the EU’s strategic autonomy and the energy security dependence. Unquestionably, we must rethink the way we have been living over the past three decades. The happiness of globalisation seems nearly over and new rules-based order will be established in the current decade.

To conclude, we must wait and see what will happen next year. A new European Parliament, as well as the new EU Commission mandate, would require experienced and competent representatives to deal with so many security concerns. We all hope for the best!

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