Autumn has found the world’s economies, including Greece’s, confronting geopolitical instability and geoeconomic uncertainty, along with the many inflationary, monetary and other consequences arising from them.
The wars in Ukraine and the Middle East remain active and show no sign of abating. As a result, key energy sources remain blocked for prolonged periods, keeping the crucial oil, natural gas and electricity markets unsettled and largely unable to meet steadily increasing demand.
The Russia-Ukraine conflict has effectively blocked flows of Russian natural gas, while the many developments in the Persian Gulf and Red Sea, where Yemen’s Iran-backed Houthis have been carrying out attacks, have halted oil exports not only from Iran but also from Saudi Arabia.
Under the weight of these conditions, international energy prices have soared, intensifying inflationary pressures around the world. Crude oil is now trading consistently above $100 a barrel and, despite some easing in recent days, new estimates do not rule out a rise toward $120 in the near future. Such a move would drive natural gas and electricity prices correspondingly higher.
Defenses
Inflationary pressure has now become so intense in the United States, Europe and even Asia that monetary authorities are being forced to raise interest rates to build defenses against the growing wave of price increases.
The new chairman of the US Federal Reserve, Kevin Warsh, was compelled to raise US interest rates from 3.75% to 4%, “betraying” Donald Trump, who had pushed for his appointment on the assumption that he would pursue the opposite course.
Persistent inflation of 3.5%, however, left little room for maneuver for the successor to Jerome Powell, whom the US president had effectively forced out of the Fed because he refused to accommodate Trump’s demands on interest rates.
Warsh chose to preserve his own credibility and that of the institution he heads rather than follow Donald Trump’s irrational demands. In doing so, he acknowledged the scale of the inflationary threat and the risks it poses to the US economy and to the fragile American bond and stock markets that shape it.
Significantly, he did not stop at a single rate increase, but signaled a second before the end of the year. This prompted a strong reaction from Donald Trump, who continues to demand interest rates at least one percentage point below their current level.
Three Scenarios
It should be noted that this followed a crisis of confidence in the enormous US bond market, worth nearly $30 trillion, as well as turbulence in equity markets. The instability was fueled in part by questions surrounding the returns and oversight of extraordinarily costly artificial intelligence investments, an area in which competition between the United States and China has reached unprecedented intensity.
The confrontation is highly significant, as the 10 most powerful US technology companies together represent the equivalent of 50% of the country’s annual GDP.
But the Federal Reserve is not the only institution to have activated its monetary policy tools.
European Central Bank President Christine Lagarde moved first to raise interest rates. In Frankfurt, where the ECB is headquartered, officials believe that disruption in the energy markets will persist for a long time, prolonging inflationary pressure.
According to reports, the ECB is already assessing three scenarios for the severity of those pressures. It has moved beyond the baseline scenario of a limited impact and is now working with the intermediate scenario, without ruling out the possibility that it may have to respond on the basis of the extreme scenario of a severe inflationary surge.
This means the European Central Bank, whose mandate is firmly focused on maintaining inflation at 2%, will continue raising interest rates at least until spring 2027. Inflation is currently around 3%, at least one percentage point above the target.
Cause for Concern
Many, however, question the effectiveness of monetary policy under the current conditions of war and blocked energy supplies. As long as geopolitical tensions persist, overall energy costs will remain high, undermining, among other things, the competitiveness of European industry.
Fuel, natural gas and electricity costs, combined with companies’ growing financing needs for artificial intelligence investments in a climate of broader monetary disruption, are creating the “perfect storm” described several weeks ago in To Vima on Sunday by Bank of Greece Governor Yannis Stournaras.
Inflationary pressure is even more intense in Greece. Gasoline and diesel prices have remained above €2 a liter since the beginning of the summer, while the heating-oil season is beginning with prices at €1.90 a liter. At the same time, electricity rates, affected by high natural gas prices, are genuinely spiraling, leaving households and businesses with a sense that costs are becoming excessive.
All the evidence indicates that we are heading toward a harsh winter in energy terms, with intensifying inflationary pressures across the full range of goods and services.
Despite reassuring statements that it retains resources at its disposal, the government is concerned. One meeting follows another, but without producing any meaningful result. Fuel subsidies apparently cannot exceed €200 million, while close to €800 million has already been spent since the outbreak of war across the wider Middle East and Persian Gulf region.
Cost-of-Living Pressures
The government is hoping for some form of European intervention, but the European Commission remains hesitant. It does not favor subsidy schemes for heavily indebted countries and is not seeking ways to restore energy flows from Russia, despite political pressure from emerging forces in a shaken Central Europe, particularly Germany.
Likewise, no solutions appear to be emerging on the other critical front, the housing crisis. At a recent presentation of newly built properties in the luxury development at Elliniko, prices reached €8,000 per square meter. Remarkably, however, 75% of the buyers to date are Greek.
At the very least, this suggests that property prices, like rents, will continue to rise, intensifying the sense of a cost-of-living crisis that is bearing down on the majority of citizens.
In short, the combination of numerous domestic and international factors and conditions points to a difficult economic winter, with consequences that remain uncertain for the election season approaching in spring 2027.
