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UKRAINE

How will the war in Ukraine impact the cost of living in Austria?

Economic sanctions imposed on Russia in response to the invasion of Ukraine are already leading to rising fuel costs. How could the situation further impact Austria?

People demonstrate in support of Ukraine in Copenhagen
Western countries have placed economic sanctions on Russia for invading Ukraine. How will they impact Austria? Photo: Thomas Sjørup/Ritzau Scanpix

As energy prices continue to rise following Russia’s invasion of Ukraine and the subsequent economic sanctions imposed by western countries, there are concerns about the impact on domestic economies in Europe.

A recent report by the Austrian Institute of Economic Research (WIFO) states Austria is most at risk in relation to its energy supplies, with Russian natural gas imports accounting for more than three quarters of Austria’s entire gas supply.

Some Austrian banks are also impacted by sanctions against Russia due to high credit claims by Russian customers.

What does this mean for Austria’s economy? And how could an escalation of the conflict or new sanctions further impact Austria?

READ MORE: How reliant is Austria on Russia for energy?

Energy

On Tuesday (March 8th), Russian Deputy Prime Minister Alexander Novak threatened to stop the supply of Russian gas to Europe as western nations considered escalating sanctions against Russia, including a ban on Russian oil imports.

According to British newspaper The Guardian, Novak made the threat in connection to Germany’s decision last month to halt the certification of the Nord Stream 2 pipeline.

Novak said: “We have every right to take a matching decision and impose an embargo on gas pumping through the Nord Stream 1 gas pipeline.”

Austria currently sources 80 percent of its natural gas from Russia. An interruption to gas imports would be acutely felt in the alpine republic and could even impact the chemical, fertiliser, pharmaceutical and plastic industries.

In this scenario, WIFO anticipates there would be gas shortages in the country by late autumn, although Austria could source alternative supplies from other countries.

READ MORE: EXPLAINED: Why isn’t Austria in NATO?

However, WIFO estimates that Austria’s economy could be hit harder by restrictions on gas than the EU average, with a potential 1.25 percent loss on overall economic value added (estimate of economic profit). The average EU loss is predicted to be 0.7 percent.

The report states: “The risks are therefore considerable and could unfold a significant negative impact on economic development.”

In the short term, energy prices are already rising following the announcement of economic sanctions imposed on Russia by the EU, UK and USA on February 22nd.

Gas prices could rise even further if the conflict in Ukraine intensifies with the possibility of a 50 percent increase in energy prices compared to the fourth quarter of 2021.

But WIFO also sees the potential for rapid restructuring of the supply of energy in Europe, albeit with significant investment.

The report states: “One can therefore see the energy crisis provoked by Russia as an opportunity to push ahead with the restructuring of the European energy system much faster and much more than previously planned. International cooperation is essential for the success of such a project.”

Banking

The economists behind the WIFO report have ranked Austria as the most affected country in western economies when it comes to the impact of sanctions on banks.

This is due to high credit claims by Russian customers in Austrian banks. Raiffeisen is particularly affected and Reuters reports that the bank is considering leaving Russia.

READ ALSO: Nehammer on Russian sanctions: ‘Austria is and will remain neutral’

In fact, Austria ranks third in the amount of money outstanding by Russian customers at almost €18 billion. Only banks in France and Italy have been hit harder with both countries recording outstanding credit of more than €25 billion.

Despite the large amounts, WIFO says the situation is unlikely to cause systematic damage to Austria’s domestic banking system. Instead, the analysts expect the Russian financial sector to be impacted more than Austria or other EU countries. 

For example, Austrian investments in Russia currently total around €4.6 billion, but Russian investments in Austria are approximately €21.4 billion.

Food

Ukraine is one of the world’s largest exporters of wheat, which means grocery prices are set to rise in Austria, according to Der Standard. This will especially impact products like bread and pastries.

The Kronen Zeitung reports that both Russia and Ukraine are also big producers and exporters of corn (30 percent and 20 percent respectively), so the price of corn will rise.

Additionally, the conflict is expected to impact already constrained supply chains for other products (including agricultural parts and machinery), as well as affect supplies of ammonia for fertiliser, which is obtained from natural gas.

This will further raise the cost of food in supermarkets.

FOR MEMBERS: UPDATED: How Austria could be impacted by the war in Ukraine

Trade

Trade flows between Austria and Ukraine total around €90 million and the most damaging impact could be an interruption in the import of oil crops. Rapeseed is of particular importance for Austria as it is used for the production of biofuels.

Ukraine is also one of the largest exporters of rapeseed in Europe and, prior to Russia’s invasion, was anticipating one of the most profitable winter crops after favourable autumn weather conditions.

Elisabeth Christen, Senior Economist at WIFO, told The Local that trade flows between Austria and Russia are not as high with just 1.5 percent of imports and 1.5 percent of exports flowing between the two countries. This amounts to €2.2 billion in trade.

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UKRAINE

Rapping, breakdancing Ukrainians win Eurovision in musical morale boost

Ukraine won the Eurovision Song Contest Sunday with an infectious hip-hop folk melody, boosting spirits in the embattled nation fighting off a Russian invasion that has killed thousands and displaced millions of people.

Rapping, breakdancing Ukrainians win Eurovision in musical morale boost

Riding a huge wave of public support, Kalush Orchestra beat 24 competitors in the finale of the world’s biggest live music event with “Stefania”, a rap lullaby combining Ukrainian folk and modern hip-hop rhythms.

“Please help Ukraine and Mariupol! Help Azovstal right now,” implored frontman Oleh Psiuk in English from the stage after their performance was met by a cheering audience.

In the Ukrainian capital Kyiv, the triumph was met with smiles and visible relief.

“It’s a small ray of happiness. It’s very important now for us,” said Iryna Vorobey, a 35-year-old businesswoman, adding that the support from Europe was “incredible”.

Following the win, Psiuk — whose bubblegum-pink bucket hat has made him instantly recognisable — thanked everyone who voted for his country in the contest, which is watched by millions of viewers.

“The victory is very important for Ukraine, especially this year. Thank you from the bottom of our hearts. Glory to Ukraine,” Psiuk told journalists.

Music conquers Europe

The win provided a much-needed morale boost for the embattled nation in its third month of battling much-larger Russian forces.

Mahmood & BLANCO  performing for Italy at Eurovision 2022

Mahmood & BLANCO perform on behalf of Italy during the final of the Eurovision Song contest 2022 in Turin, Italy. (Photo by Marco BERTORELLO / AFP)

“Our courage impresses the world, our music conquers Europe!” he wrote on Facebook.

“This win is so very good for our mood,” Andriy Nemkovych, a 28 year-old project manager, told AFP in Kyiv.

The victory drew praise in unlikely corners, as the deputy chief of the NATO military alliance said it showed just how much public support ex-Soviet Ukraine has in fighting off Moscow.

“I would like to congratulate Ukraine for winning the Eurovision contest,” Mircea Geoana said as he arrived in Berlin for talks that will tackle the alliance’s expansion in the wake of the Kremlin’s war.

“And this is not something I’m making in a light way because we have seen yesterday the immense public support all over Europe and Australia for the bravery of” Ukraine, Geoana said.

British Prime Minister Boris Johnson called the win “a clear reflection of not just your talent, but of the unwavering support for your fight for freedom”.

And European Council President Charles Michel said he hoped next year’s contest “can be hosted in Kyiv in a free and united Ukraine”.

‘Ready to fight’
Despite the joyous theatrics that are a hallmark of the song contest, the war in Ukraine hung heavily over the festivities this year.
 
The European Broadcasting Union, which organises the event, banned Russia on February 25, the day after Moscow invaded its neighbour.
 
“Stefania”, written by Psiuk as a tribute to his mother before the war, mixes traditional Ukrainian folk music played on flute-like instruments with an invigorating hip-hop beat. The band donned richly embroidered ethnic garb
to perform their act.
 
 
Nostalgic lyrics such as “I’ll always find my way home even if all the roads are destroyed” resonated all the more as millions of Ukrainians have been displaced by war.

Kalush Orchestra received special authorisation from Ukraine’s government to attend Eurovision, since men of fighting age are prohibited from leaving the country, but that permit expires in two days.

Psiuk said he was not sure what awaited the band as war rages back home.

“Like every Ukrainian, we are ready to fight as much as we can and go until the end.

Britain’s ‘Space Man’

Ukraine beat a host of over-the-top acts at the kitschy, quirky annual musical event, including Norway’s Subwoolfer, who sang about bananas while dressed in yellow wolf masks, and Serbia’s Konstrakta, who questioned national healthcare while meticulously scrubbing her hands onstage.

Coming in second place was Britain with Sam Ryder’s “Space Man” and its stratospheric notes, followed by Spain with the reggaeton “SloMo” from Chanel.

After a quarter-century of being shut out from the top spot, Britain had hoped to have a winner in “Space Man” and its high notes belted by the affable, long-haired Ryder.

Britain had been ahead after votes were counted from the national juries, but a jaw-dropping 439 points awarded to Ukraine from the public pushed it to the top spot.

Eurovision’s winner is chosen by a cast of music industry professionals — and members of the public — from each country, with votes for one’s home nation not allowed.

Eurovision is a hit among fans not only for the music, but for the looks on display and this year was no exception. Lithuania’s Monika Liu generated as much social media buzz for her bowl cut hairdo as her sensual and elegant
“Sentimentai”.

Other offerings included Greece’s “Die Together” by Amanda Georgiadi Tenfjord and “Brividi” (Shivers), a duet from Italy’s Mahmood and Blanco.

Italy had hoped the gay-themed love song would bring it a second consecutive Eurovision win after last year’s “Zitti e Buoni” (Shut up and Behave) from high-octane glam rockers Maneskin.

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