Economic consequences of Russia’s war in 2023: EU context

The Russian invasion of Ukraine will continue to impact Europe’s economic policy in 2023. The European Parliamentary Research Service has prepared a forecast of the European Union’s most pressing problems and the topic of the Russian war in Ukraine and its consequences for the European country. 

The Russia-Ukraine war has already been declared a “geopolitical tectonic shift” in the EU. It affects the most fundamental areas of life, including economic growth and inflation, energy and transportation, information security, and geopolitics.

Europe’s energy situation

The energy crisis caused by Russia’s invasion has revealed the EU’s over-dependence on Russian energy sources. To guarantee supplies, cope with high prices and accelerate the transition to a green economy, the European Commission has proposed the REPowerEU plan. 

Part of the existing COVID-19 crisis fund is to be redirected to energy, and the amount of grants in this area is to be increased by €20 billion. Also, the EU has managed to double its renewable energy production over the past year.

European Commission President Ursula von der Leyen declared

«And most importantly, we managed to double the additional renewable energy that was coming to our market last year. Of course, some external factors helped – the mild winter and China’s COVID-19 lockdown. But at the same time, other external factors also make our life more difficult. This unusual warm and dry weather also resulted in a sharp decrease in hydropower, you all recall it.»

Ursula von der Leyen, European Commission President

Information security

The EU focuses on protecting its information infrastructure. Russia’s war against Ukraine has uncovered an urgent problem of insufficient information systems security, as part of Russia’s hybrid warfare is massive cyber attacks on the EU. 

Hacks on computer systems of critical facilities such as energy, health care, and finance are particularly problematic, according to research by Polona Kar, a digital policy analyst at the European Parliament.

Russian cyber attacks have demonstrated that disruptions to essential services pose a real threat to the European Union. For example, an attack on a satellite communications provider an hour before Russia’s full-scale invasion of Ukraine on Feb. 24, 2022, affected Internet services and wind farms across Europe.

EU budget

Brussels has launched a massive program worth more than €800 billion to help the economy recover from the COVID – 19 crisis. But it had barely begun when the EU had to respond to new concerns caused by Russia’s invasion of Ukraine. These include security crises, humanitarian and energy crises, and high inflation.

“But the EU budget is not a crisis one, meaning that it cannot adapt to unforeseen circumstances,” explains Alina Dobrova, an analyst at the Budget Policy Unit of the European Parliament Research Service. 

Its main shortcomings are insufficient revenues and lack of flexibility in spending because of the rigid ceilings when adopting annual budgets.

The EU leadership will need solid strategic decisions to respond to Russia’s war impact and challenges in the geopolitics and energy sector.