Europe Just Might Dodge a Winter of Discontent

be burning so brightly or as long. We're transporting you to Zurich for that story. In a moment with a cold front about to hit Europe, I also are star columnist Xavier Blast an economist May Vakuza whether European governments have done enough to put improve European energy supplies. If European homes do stay warm through this winter, it turns out they'll partly have China's COVID zero policies to thank.

So to round off this week's show, we have a quick update from China government reporter Calum Murphy on the protests that broke out earlier this week in more than twenty Chinese cities. But first that story from Bloomberg Economy reporter Bastition Ben Wrath in Zurich snowboard and we're selling snowboarn in ski apparel. If people don't want to come into town anymore to buy something like this and instead only shop online, that hurts us very very much. That

was Tim Stickle. For thirty years now, his store called rail Slide, has been the go to place for everything related to skating and snowboarding in Frankfort, Central Germany. It's located very conveniently. Shoppers can find it downtown, right between Frankfort's style main Sharping Street and the rum Or Square with its famed Christmas market. In the run up to the holidays, that usually brings a lot of foot traffic into a store war which shop is looking for snowboards,

jackets and gloves to put under the tree. But this year things are different. Russia invaded Ukraine, which plans Europe's relations with its main fuel provider into an ice age. Energy prices on the continent are starring and governments are looking for ways to save natural gas and electricity. In this situation, Christmas lights have become a comparatively easy sacrifice

to cut down on energy use. European streets are traditionally decorated with sometimes thousands of twinkling stars and fairy lights for the season, but now more than a dozen cities like Paris, London, Copenhagen, Zurich and Berlin have cut their lights, short, reduced the area, or even outright band them. Frankfort is among them, cutting large light displays and a number of Christmas trees. For retailers like Tim, this is a cause for concern. He doesn't have an online shop, so he's

dependent on people coming into town. Since the city year, Frankfurt has also decided not to heat the toilets on the Christmas market this year, another energy saving measure. He worries that many people are going to stay home and just shop online. This is the most important time of the year. I'll say that around Easter we sell a lot, and then at Christmas. I don't want to name precise proportions, but Christmas does stand for a very, very large part

of our revenue. Worries about the holiday sales are echoed throughout Europe, especially as other indicators have already suggested consumers might spend a lot less on Christmas this year. Disposable incomes shrun almost five percent globally between this summer and last. According to recent figures from the Organization for Economic Cooperation and Development, high energy prices and rising inflation rates are

eating away on the money people can spend. For retail experts, this puts a big question mark over the likely success of this year's holiday season. He is Marcel Staffel, who leads the Council of Shopping Places in Switzerland. As it's hard to make any forecasts because you always forecast based on past data, but this year we had so many out of the ordinary variables that you basically can't do that. Going by consumer sentiment, it's certainly at an all time low.

You would expect catastrophic holiday sales. Judging from that, I hope it won't be quite as severe as that absolute tief stunt that Mustafa skin. But does cutting back on nighttime lighting even makes sense? A closer look at the power consumption of lights suggests that might actually not be

the case. An example from Paris, nighttime lighting of the Eiffel Tower only accounts for four percent of the landmarks electricity use, with heating and powering the commercial areas on the tower's first floor using much more, But that didn't stop Paris Mayor and Hidalgo from announcing that the towel will switch off its lights an hour early age evening to save energy. Luvantois kahnt sunk Ala Fern Christmas lights.

The magic word seems to be led. The company behind the light ensemble on the Zurich's pricey band of strauss A shopping street maintains that the entire installation of more than twenty three thousand snowflake themed theodes doesn't use more than three kilo one hours per hour. Let that's about the same a household of and uses per hour if you run it on maximum temperature. Still, the City Commission of Zurich decided to half the time the lights are on from about ten to five hours every day this

year for the sake of saving energy. So it seems that in many places, cutting the Christmas lights might actually be more about saving face than actually about saving energy. And that also doesn't stop at retailers. Here is massive stuffle. Again. If somebody now doesn't abstain all and says, hey, I'm just doing my decorations like every year, and his lights in are big and noticeable, then it may happen. Did he get some critical comments like it, doesn't he get it?

You should really show some effort this year and save energy wherever it's possible. So retailers are indeed torn on whether they should put up Christmas lights. On the one hand, they fear less festive atmosphere might hurt their sales. On the other, however, they dragged being chastised by shoppers for

not making enough of an effort on saving energy. That means that in Europe's major and minor shopping streets, he'll be seeing shopkeepers who, in addition to the reduced lights outside, also have decided to take down the lights inside their shops. They are hoping that customers give them credit for that. That is, if one inflation left some interest in shopping and they didn't decide to stay home in the first place. Staffel is going the other way. We're currently going through

such dark times. I wouldn't heard if we had some Christmas lights. For Bloomberg News, I'm bath Jan Bnrad. So while shopkeepers in Europe grapple with the morality of their Christmas decorations, governments have for months now been trying to ensure the lights and the heating stays on through the winter in homes across the continent. But here we are in December and it seems to have gone fairly well.

Today Bloomberg's in house energy consultants BENF predicted that a large part of Europe might end the winter with their gas storage still more than half full and with a good shot of completely refilling again before Christmas three. That's despite being largely cut off from Russian gas, which we previously had thought would be completely devastating. So so what went right and what's the long term impact of this

energy crisis going to be in Europe? Well, Bloomberg senior Europe economist may have a Kuza and Bloomberg columnist and best selling author, have you a blast? Two people with a pretty shrewd take on those questions. Thanks both of you for coming back on on Stephanomics. Maybe let me let me start with you. I think remember, I mean six months ago, maybe even less, there were some pretty dark forecasts for what would happen to Europe without Russian gas.

Now it's December. President Putin has done his worst, but we haven't seen lights going out across Europe. So so what's happened? So just to start, I think some of those forecasts where maybe a bit busimistic. Since July we have followed our colleagues at BENEV thinking that actually the winter could be rough, but energy systems would not collapse for the winter. But still you're right that things have gone better than could have been probably much better than

could have been expected. For one thing, first, energy supply has been abandoned. High prices in Europe and lower demand in Asia have already helped keep the supply coming, and that has helped a lot. In addition, we've had some mild weather at the start of the at the start of the autumn, which has delayed the start of the hitting season, which has helped. But the way beyond this mild weather, we have seen very substantial reductions in the

mound where in excess of what people were expecting. I think in the latest out look ben if he's looking for some twenty percent reduction in the amount relative to normal something like that. And finally, one last thing is that I think, um, your open systems have also worked well. I think your open energy networks and European solidarity has held out so that we have sund Europe has kept sending gas where it was most needed, and that has been that has been It madeview quite quite a big

success as well. That's interesting you say about the solidarity, because that had been a question mark about whether, you know, if it came to it and the gas was kind of in the wrong place, Like we know, German has been quite good at building up supplies, would countries be willing to send gas to those countries that were more vulnerable And the idea that they been doing that, I think is is interesting and again not something we would

necessarily expected. And I'm interested in what you say about demand moever, because we tend to think that, you know, people respond to incentives, and a lot of the extremely expensive support for households that governments have given across the continent has effectively cushioned them from the massive increase in energy prices. And there's been criticism that that sort of was reducing the incentive for households to reduce their demand

because they weren't seeing the full price increase. We've seen bigger falls in places where households have seen a sticker price of energy go up. So the first thing is that electricity and gas prices, energy bills are still up sixty percent Angelia in the euro area, so even if maybe not as high as in the UK, it's still a very large increasing gas bills and energy bias. And in addition, I think the message that we needed to save energy for geopolitical reasons has been quite strong everywhere.

So compling shion of geopolitical message and substantial increasing prices has probably been enough to give the right incentives. We've sort of focused on keeping the lights on. But obviously the other side of this is the impact on the economy and what are you looking at in terms of the hit to the economy and the depth of the recession.

Is there any good news there? So we had some good news from them from the energy side, mostly because if you have at the same time quite a lot of the main reduction and we've seen quite a substantial decline in their spaces, sell a lot higher, but that will help overall. We think that European countries will spand about two point eight percent of their GDP on important

gas in twenty twenty three. That's up from one point three percent, but at some point when prices were above two euro without they would be spending more than nearly five percent of their GDP. At the same time, if anything, financing conditions have tightened much more than we could have anticipated before the start of the e c B hiking sake, and as a result, we still expect your area will fall into a recision. It would be a major psisition.

But we still forecast your area to contract by not point five percent in this quarter and a point four percent next quarter and twenty three Party Technician of the Economy. So we've got some of the really sort of downside scenarios that we had for the economy that we're driven by those really big increases in energy prices that we had at the start of the autumn and early winter. UM, those those sort of disaster scenarios have not come through.

But at the same time, globally, the cost of borrowing has gone up for governments even as the before the central banks really got started on raising official rates UM, and that in itself is going to slow the economy. So I guess it's it's it's a it's a mixed picture. Have you a blast I should? I should bring you in given your experience of global energy markets, but also how European governments can often mess these things up. Have they done better at the supply side of this crisis,

securing supplies of gas than you might have expected. I think that they have done very well all considered, but they have got very lucky with China. You could look at the chart of global energy supplies and look at how much China decrease his buying of lergy over the last twelve months, and then compared to how much the European Union or Europe including the UK have increased llergy purchases, and it's almost one by one, it's all what China

has not boat has gone back to Europe. What will have been the situation eve China have not been in lockdown and with different COVID zero policy, I think it will have been a lot more complicated for European countries to operate. And then I'm very hesitant to say that have done well or that the worst is over. At the beginning of December, we have, depending on the weather, ninety to a hundred and twenty days of cold weather

in front of us. It could be mile as it has been the case of most of November and most of October. Actually, we have had one of the milder's um pre winter periods in recent history in Western Europe. Or it could be extremely cold and then we will be in deep trouble. I mean to to to think that everything is fine in December, when we have three what I will call very miserable um um months in front of us, I think it will be it will not be the right thing to do. We spected like

a Spaniard who lives in London. I may have thought that when I was walking out of my house this afternoon for a sanguige, and I did thought why I'm living here in the UK. So okay, So that's one thing that could go wrong. We could get some pretty grim winter. I guess Another side of this is just how much it's cost governments to secure this supply. I mean, you make a fascinating point about China um and them having been lucky with that, but there have also been

these deals with Qatar and with other places. I mean, have it has it? Has this been done in any way efficiently or has it just been done in a mad scramble. It has been done in a bit of a mother scramble. But I think that considering the time constraints, considering the difficulties, it has actually gone relatively well in Europe.

I think that it has worked well. I think that the European solidarity has ward to a point although Germany has both um ellen gy and GUS supplies or whatever, the price was needed to make sure that they had enough inventories and pushing up prices for the rights of Europe quite considerably. But just considering how countries have to do these uh with just basically a Russian gun pointing at at their heads of the policy makers, I think

that it has done quite efficiently. Has it been very expensive, Yes, has been massively expensive. Even at current prices um which are much lower than that we saw in July Augos. We are talking about a hundred and thirty euros per megaat our. That compares to what you used to consider a normal price of about twenty euros per mega at hour. So I think that yes, we managed to buy in

off gas. We got very lucky with China been in in the status of permanent lockdown, and then we got very lucky with a very mild start of the of the winter, who has led Europe to start December in

a very comfortable position. But let's not forget that now every day we're going to be consuming guys from inventories, and there is not Russian guys be a pipeline to help us rebuild the inventories necess spring and China maybe or may not be back and open and consuming lerg and so all of those factors made me a bit and comfortable. And we have seen a couple of days of a bit of windless weather and a bit of colder temperatures, um like the day that we are recording

this podcast, which made me prone. They thought about going back to Spain for sunshine. And the electricity system in the UK and France have really been tested and it has been pretty tied. So you wouldn't rule out the chance having still having blackouts or para outages at some point. No, not at all. I think I think that that is still a very reasonable case. I think that that's the

reason why government remain fully prepared for that. UM. France is a country that could suffer trouble in early January, particularly if it gets very cold and more nuclear reactors are repairs are delay, as it has been the case in the last few weeks. So I would not say do I think that we are better than where I thought that we will be a couple of months ago. Yes, we are do I think that we are out of the boots. I think that it is too early to to say. And I think that more things could happen.

To think that bloody mill putting will not try something else, um, it will be a naive. He may have some other measures to try to put more pressure on Europe this winter. Every time that we thought about pluting, will not there to do something else. He will not cut these supplies. He will not cut these other supplies. He will not threaten the pipelines. And he did it. So to think that, you know, he would not try to do something pre Christmas, I think it would be very naive. What kind of

thing has he got up in sleeves still? What? What? What kind of scenarios? Well, he can still cut more, He can cut the few molecules b bcms, billion, quvick meters that he's still chipping into Europe ironically via Ukraine. Um, and he can threaten the physical integrity of pipelines. And I think that to me, the most concerning thing for this winter is the threat of cyber attacks on the

electric degreed. Then that that is what every you told to them privately, that every senior executive of the electricity UM industry is worried is cyber attacks this winter. Let's not forget there was a cyber attack UM not that long ago, the last couple of years against the biggest refined products pipeline and in the United States, which is called colonial that pipeline was stop working. It triggers shortages of gasoline in the eastern course of the United States.

And the cyber attack was a commercial hack. It was done by demanding a Ramson. They wanted money, but he originated from Russia. Mhm. And if the goal was to deprive Russia of the benefits of high energy prices, you know, there's been lots of governments who've talked about this, and we've talked about price caps at various points. President Biden is still looking for an oil price cap. Is that going to happen? I mean, we have we found a way to punish Russia via that via from that direction,

we haven't. And the main problem is that the price caps are trying to square a circle. I mean, you cannot reduce the price and artificially dictate what the price is going to be unless European government are willing to UM for in the case of natural gas, are willing to put some compulsory demand response to to make that happen. You cannot say the price cannot go above that particular price level unless you are willing also to say, well,

demand cannot go above a particular level. And that's the reason why the European Commission has proposed this price cap that doesn't cap anything at a very high level, with

a lot of additional UM requirements. In particular the requirement that prices need to be at a very high level for ten consecutive trade in there is something that it didn't happen even when prices went through the roof in July, and augoes uh and I think that the main reason that they designed that way is because they knew that they needed to create a cap that will not work. So everyone who wanted a cap could say, oh, we

what we got the cap. That's our political win. And everyone who thinks a cap is a bad idea said, well, they have a cap, but it doesn't work. So that's also a political win for us UM. And that's the gas cap that the the European Union is debating at the moment. Finally, if we're sort of stepping back. I noticed that the Economists had on its cover it had a sort of picture of the of a frozen European

continent saying how the world is leaving Europe behind. It was suggesting that although there's been some sort of short term good news that we've discussed, the crisis has cost Europe deer and highlighted how the continent is failing to keep up with the rest of the world and certainly the US and China. Do you think that's right? That this is a further nail in the coffin for for

Europe's economic model. I mean, eurobe is going to have a problem because he's going to face much higher energy prices that other rediunts of the wall for for for for longer. I mean, you look at where natural guys is training right now in the United States is something around um uh seven dollars per m b tu Europe and an equivalent basis is being something like forty. So you are there, CEO of a big chemical plan, and you have the choice where you said home in Germany

or in Texas. I think that the answer is is very simple. You got to Texas. I mean, there is not even a question about it. I think that some European policymakers are beginning to shave away from the initial thought, um, initial worried of high gas prices, that was mostly on course of living an inflation. And now they're beginning to

think more about the industrialization of Europe. And that is something that I have been hearing quite lot from central bankers, in particular, that there is the second impact of the gas crisis, that the industrialization of Europe. What they are worried now. UM. You know, the way I put it is uh six six six, and that's not any any don't don't look at it in any particular devilish way.

But when the invasion of Ukraine has start back in February, when I was talking to executives of big European energy consumers, they were prepared for a six week crisis. UM. At the end of March the beginning of April, UH and when it was very clear that Ukraine was able to defend itself much better than many thought, they they're thinking a month, executives shifted and I said, okay, well, this is not gonna be a six week crisis. This is

gonna be a six months crisis. And six months later, the thinking is now, well, this may be a six year crisis because the global elegy market is gonna remain tied somewhere until twenty six PERHP seven. And that's why, you know, that's what the six weeks six months, and now they're thinking about six years, perhaps a bit less than than six years. But allow me to do the six six six, And I think that that is it's very problematic because you do not changed your business plans

for six weeks. I don't think that any executives really make any fundamental business plan change for six months either other than some adjustments and let's reduce some production here, let's try to save some money there, you know, delays on investments. But if you think that this is a six year problem, for six years, executives do really start to think harder about what they need to do different. Well, great, leave us on and up. Why don't you have ya?

Thank you so much, Maybe have your blass Thank you Mava and Zurich, and have you in London. I promise you by your sweat of Christmas. But I appreciate both of you coming on. Why, well, we just learned that China's troubles exiting COVID had produced unexpected benefits for Europe in its search for extra gas supplies, but we can see it is causing continued confusion and continued challenges for China. And this week anyone listening will have seen you had

those very unusual street protests in China. So I just wanted to check back in with Carlin Murphy, who we talked to a few months ago, our government reporter in Beijing, although currently in Hong Kong column. Thank you very much for coming on. I mean, briefly, where do things stand the nationwide sort of protests that we saw over the weekend, one source putting it at forty three protests in twenty

two cities. They have definitely quietened down. On a Monday night and Tuesday night in places like Beijing and Shanghai, there were very few people out right now. It's a bit quiet, and of course the main factor of that is the sheer number of police that have been on the street, and and the stick element of this is a very very strong, and I think it is putting people off. And on Wednesday, we heard, of course about

the passing of the former president Jang Zimen. That brings up immediately the question how this might impact the protest. Will we see more people taking to the streets, whether it be to memorialize the president or to express further

their discontent with the current situation. So of course, everyone in Britain anyway likes to see everything through the lens of football, and there was has been a lot of debate about how much the pictures from the World Cup of fans mingling had helped to trigger this, But one of our colleagues was pointing out that they were also all these pictures of the president sieging ping with other leaders at the G twenty summit recently, also unmasked and

and in confined spaces. So do you think that was a that was a factor as well? I believe so. I mean, the original spark of this was a fire that took place in the city of Urumchi, which is the capital of the Shinjiang region in the far western part of China. They're in a high rise building. About ten people, according to official statistics, were burned to death

in a fire that many people said was preventable. There was rumors going around that people had been locked in that fire trucks could not have access to the building. Um circulation online of videos showing that people were crying inside the building as the flames engulfed that. But of course all of this was denied by the local governments, who said, almost in an arrogant way, that the doors were clear and open, but that it was the people

who decided not to run and leave the building. And in contrast to that, then you have this celebration going on at the World Cup and of course the visiting leaders, So people are watching these images of celebrations taking place at the World Cup. Meanwhile at home in China, the people are living under very strict conditions and the hardship is quite pronounced. So it really underscores the fact that

the world has moved on, but China hasn't. And if we're just looking at it through a sort of economic lens, it's was striking. I mean, it was interesting and very unusual to have so many cities involved in this, but as we as we know, the numbers were quite small.

I wonder, I mean, in economic terms, the significance of that of the walkouts and the riots at the in the big in the sort of iPhone city, in that massive fox com um complex, is that potentially more significant for for the Chinese economy, I think it's back to the COVID issue and how how quickly they will um address that, or whether they will take the protesters concerns and try to allay those fears and then sort of relax the COVID regulations. That would be the biggest way

to have an impact on the economy. But if they continue to pursue, uh, you know, the policies as they are, then we will continue to see this economic downturn. And this is particularly a problem for the younger people. So we have a lot of young people making up the protesters and they're having difficulty finding jobs, and youth unemployment

is almost record high. So I think, you know, this is economic issues are definitely underpinning this, But in terms of the numbers and having an impact on the economy per se, I think it's still, as you say, quite small. The bigger impact will come from whether or not they

decide to relax the COVID regulations or not. I mean, there is quite a lot of confusion over where things stand on the on the COVID, on the on the exit out of COVID, because although we had, as you say, there's big show of force in response to these these protests, a lot of police out on the street. We also had messages out of the government that seemed to be adjusting the course and even responding to some of the opposition to COVID policy. So has there been a softening.

So our reporting is pointing to a softening, and there have been some isolated reports here and they're suggesting that perhaps maybe COVID is not so bad after all. But you know, these are really very sort of preliminary and not sort of orchestrated in a in a centralized way. Yet I think the important thing to remember at all times is that COVID zero basically is cheeting pings policy, and anything that sort of moves the dial on that

is really going to reflect directly on him. And even the protests of are are a huge embarrassment for him just after receiving, you know, the backing of the whole party at his coronation during the Congress. So basically it's like this is going to be really difficult to shift. Even though we might be seeing some early sort of indications of softening, I think it's going to take time. Colin Murphy, thank you. Well, that's it for Stephanomics. We'll

be back next week. In the meantime, please rate us wherever you get this podcast, and check out the Bloomberg News website for more economic news and views on the global economy. You should also follow at economics on Twitter. This episode was produced by Yang Yang, Summer Sadi, and Mangnus Hendrickson, with special thanks to Colin Murphy, Bastian ben Wrath, Mava Kusin, Xavier Blasts, and of course Tony Bennett. Mike Sasso is the executive producer of Stephanomics.