Across Europe, signs of distress are multiplying as Russia’s war in Ukraine continues.  Food banks in Italy are feeding more people.  German officials reject air conditioning as they prepare plans to ration natural gas and restart coal plants.
A giant utility company is asking for a taxpayer bailout, and more may be coming.  Dairies are wondering how to pasteurize milk.  The euro has fallen to a 20-year low against the dollar and recession forecasts are rising.
These pressure points are signs of how the conflict – and the Kremlin gradually choking off the natural gas that keeps the industry humming – has caused an energy crisis in Europe and raised the possibility of a plunge back into recession as the economy recovers from COVID-19 pandemic.
Meanwhile, high energy costs fueled by the war are benefiting Russia, a major oil and gas exporter, whose flexible central bank and years of experience living with sanctions have stabilized the ruble and inflation despite economic isolation .
In the long run, however, economists say Russia, while avoiding total collapse, will pay a heavy price for the war: deepening economic stagnation through lost investment and lower incomes for its people.
Europe’s most pressing challenge is more short-term: fight record inflation of 8.6% and get through the winter without crippling energy shortages.  The continent relies on Russian natural gas, and higher energy prices flow into factories, food costs and fuel tanks.
The uncertainty weighs on energy-intensive industries such as steel and agriculture, which could face gas rationing to protect homes if the crisis worsens.
Molkerei Berchtesgadener Land, a large dairy cooperative in the German town of Piding outside Munich, has stored 200,000 liters (44,000 gallons) of fuel oil so it can continue to generate power and steam to pasteurize milk and keep it cold if it comes electricity or natural gas.  the turbine generator is cut.
It is a critical safeguard for 1,800 farmer-members whose 50,000 cows produce one million liters of milk a day.  Dairy cows need to be milked every day, and a shutdown would leave that ocean of milk with nowhere to go.
“If the dairy doesn’t work, then neither can the farmers,” said CEO Bernhard Pointner.  “Then the farmers would have to throw away their milk.”
In one hour, the dairy uses electricity equivalent to a year for a house to keep up to 20,000 pallets of milk cold.
The dairy has also stockpiled packaging and other supplies to guard against suppliers being hit by power shortages: “We have a lot in stock … but that will only last a few weeks.”
Financial woes also show up at the dinner table.  Consumer groups estimate that a typical Italian family is spending 681 euros ($681) more this year on food.
“We are really worried about the situation and the constant increase in the number of families we support,” said Dario Boggio Marzet, president of the Lombardy Food Bank, which groups dozens of charities that run soup kitchens and provide basic items to the needy.  Their monthly costs amount to 5,000 euros this year.
Jessica Lobli, a single mother of two from the Paris suburb of Gennevilliers, pays close attention to rising grocery prices.  He cut down on milk and yogurt and gave up Nutella or branded cookies.
“The situation will get worse, but we have to eat to survive,” said Lobli, who earns between 1,300 and 2,000 euros a month working in a school kitchen.
Her monthly food budget of 150 to 200 euros dropped to 100 euros in June.  She said her family doesn’t eat out as much in the summer, but worries about September, when she’ll have to buy school supplies for her 15-year-old daughter and 8-year-old son, further reducing her budget.
French President Emmanuel Macron says the government aims to save energy by turning off public lights at night and taking other measures.  Likewise, German officials are imploring citizens and businesses to save energy and ordering lower heating and air conditioning settings in public buildings.
It follows Russia cutting off or reducing gas supplies to a dozen European countries.  A major natural gas pipeline was also shut down for scheduled maintenance last week and there are fears that flows through Nord Stream 1 between Russia and Germany will not restart.
Germany’s biggest importer of Russian gas, Uniper, has asked for government help after being squeezed between soaring gas prices and what it is allowed to charge customers.
Carsten Brzeski, chief eurozone economist at ING bank, predicts a recession at the end of the year as high prices reduce purchasing power.  Europe’s long-term economic growth will depend on whether governments face the huge investments needed to transition to a renewable energy economy.
“Without investment, without structural changes, the only thing left is to hope that everything will work as before – but it won’t,” Brzeski said.
While Europe suffers, Russia has stabilized the ruble exchange rate, stock market and inflation through extensive government intervention.  Russian oil is finding more buyers in Asia, albeit at reduced prices, as Western customers retreat.
After being hit with sanctions over its seizure of Ukraine’s Crimea region in 2014, the Kremlin has built a fortress economy by keeping debt low and pushing companies to source parts and food in Russia.
Although foreign businesses such as IKEA have closed and Russia has defaulted on its foreign debt for the first time in a century, there is no sense of impending crisis in central Moscow.  Young people in heels still go to restaurants, even if the Uniqlo, Victoria’s Secret and Zara stores are closed in the seven-story Evropeisky shopping center.
McDonald’s successor Vkusno-i Tochka serves more or less identical food, while the former Krispy Kreme in the mall has rebranded but sells basically the same offerings.
In less affluent provinces, Sofya Suvorova, who lives in Nizhny Novgorod, 440 kilometers (273 miles) from Moscow, felt the strain on the family budget.
“We practically don’t order takeout anymore,” she said while shopping at a supermarket.  “It used to be very convenient when you have small children.  We go to coffee shops less often.  We have had to cut back on some entertainment such as concerts and theatres.  We try to keep this for the kids, but the adults had to cut it.”
Economists say the ruble’s exchange rate – stronger against the dollar than before the war – and falling inflation paint a misleading picture.
Rules that prevent money from leaving the country and force exporters to exchange most of their foreign oil and gas earnings into rubles have rigged the exchange rate.
And the rate of inflation has “partially lost its meaning,” Janis Kluge, an expert on the Russian economy at the German Institute for International and Security Affairs, wrote in a recent analysis.  This is because it is not responsible for the disappearance of Western goods and the lower inflation probably reflects the reduction in demand.
About 2.8 million Russians were employed by foreign or mixed companies in 2020, according to political scientist Ilya Matveev.  If suppliers are taken into account, up to 5 million jobs, or 12% of the workforce, depend on foreign investment.
Foreign companies may find Russian owners, and protectionism and an abundance of state jobs will prevent mass unemployment.
But the economy will be much less productive, Kluge said, “leading to a significant reduction in average real income.”