February 10 2023
As we enter 2023, the European economy is facing large shocks that need urgent attention by policymakers and businesses. Before the Covid-19 pandemic, it looked like the world was about to begin a new era of growth and prosperity, fuelled by automation technologies based on robotics and artificial intelligence (AI). The challenge that we were facing were how to manage and regulate AI, and how to avoid disruption to workers’ lives, especially the low-skilled ones, whose jobs were threatened by the new technologies. But in 2020 the European and world economies shut down to save lives, and all efforts were directed to finding a solution to the medical crisis. The discovery of vaccines that could be applied speedily on a large scale was a big achievement of humanity. It was an example of how collaboration between nations could deal with a major crisis that threatened us all.
As the pandemic was easing its grip on society, policy efforts turned to the need to reverse the monetary and fiscal expansion that took place during the pandemic to support the economy. But having learned how we can produce results by working together, attention also turned to another global crisis, climate change. Although commitments were made by governments to limit carbon emissions, most countries were well-below their targets. An advantage of the transition to sustainable energy that is often ignored is that the transition will create many jobs, bringing those who lost their jobs in the pandemic back into employment.
The challenges created by the pandemic and the post-pandemic recovery were difficult, but manageable. The war in Ukraine, which arrived as Europe was coming out of the pandemic, was not. It disrupted supplies of food and energy, raising their prices. Coupled with the price inflation caused by the public spending during the pandemic, it brought a sudden rise in overall inflation that has not been seen for decades. Despite central banks’ efforts to contain the inflation, prices kept rising, because now the main reason for their rise was not monetary expansion, but the disruption caused by Russia’s armies to the supplies of oil, gas and agricultural products from Ukraine.
What can European governments and businesses do to overcome these difficult times? Reversing the inflation caused by spending during the pandemic, transitioning to sustainable forms of energy, and developing new technologies for the human good are big challenges. But dealing with them is in our hands; with willpower and focused effort we can do it. The war in Ukraine, with its tragic consequences for innocent people, depends on the unpredictable whims of a hostile Russia. Energy supplies and prices are volatile at the best of times, and the longer we rely on Russian supplies the more we expose ourselves to risks. It is time to intensify our efforts to expand sustainable sources of energy. New AI technologies can help in this effort and they should be used for the human good. In a well-planned and universal transition, new and cleaner jobs will be created bringing workers back into profitable employment; and once we are on a sustainable path, of prudent monetary policy, inflation will come under control. There is no rush to throw the economy into recession to bring inflation down. Patience and a good plan for a transition away from dependence on fossil fuels, and Russia, will bring clean and labour-rich growth in Europe.