The reason for the rise in energy prices is the actions of madmen in Brussels

Interview with prof. Zbigniew Krysiak, economist, president of the Institute of Schuman Thought

Compared to the same month last year, prices of consumer goods and services in November 2021 increased in Poland by 7.8%. – we read in the latest statement of the Central Statistical Office. It is much more than in the previous months. Where does it come from?

First of all, it should be noted that these fluctuations between months are different, and if we summarised them, the average annual inflation for this year would amount to a total of approx – 5%. When we measure – let’s say November to November of the previous year – we see that in the following months, these prices were falling. And if we count from December to December or the average of all these months, we will reach the value mentioned above of approx. 5%. That is how you should look at it to diagnose this situation objectively. Inflation measured in this way, for example in Belgium is 7%, in Germany 6%, in Denmark, it is similar, while in many other countries it is even higher.

Does this mean that inflation is rising throughout the European Union?

Yes, although as I mentioned, its levels are different. The rise in energy prices is the actions of madmen in Brussels, who increase the cost of CO2 emissions, which currently stands at EUR 90 per ton, and until recently at EUR 10-20 per ton. Yet this is an essential component in the price of energy. The administrative decision taken in Brussels is still being pushed mainly by Germany and the Netherlands. The Germans in the SPD even stated in the coalition agreement that these costs could not be lower than EUR 60 per ton. That is why they grow and will continue to grow. Poland, France, the Czech Republic and other countries fought to change these provisions. Since various countries have taken steps to switch to gas, Germany is making Nord Stream 2 with Russia. The gas policy is set in such a way as to eliminate coal-based energy production to some extent. Meanwhile, let us remember that in Germany or Spain, energy is still produced from coal. In addition, the Germans have opened new coal-fired power plants and mines in recent years. Nevertheless, this reduction from coal is being replaced with gas, and the Russians control this. The result is that there is a low supply and a high demand, and therefore prices rise.

So, it can be concluded that the promotion of the “Fit for 55” strategy and Putin’s manipulation of gas prices translates into the current inflation?

Yes, these two issues are the direct cause of inflation, and Germany controls that in the EU. That is absurd because the global CO2 emissions in the EU are about 8 per cent, while Asia emits 60 per cent, and much more are Russia, the United States and other countries. The Chinese withdrew from these arrangements because they noticed that it was madness. They will, of course, switch to ecological solutions, but at their own pace. On the other hand, Europe is going into destruction because the entire industry and economy are based on coal energy resources, which cannot be converted to wind or solar energy. And this is the crucial problem, which is why I call Brussels actions foolish because fundamental economic rights are being violated. The direction of green energy sources is correct, but if we balance capital resources for individual countries, how much financial resources are needed to switch to, for example, nuclear energy, windmills or hydrogen – this money is too much. Until 2030 – as Germany would like – it is impossible to obtain such funds. We are observing some darkening of minds, giving up logical and economic thinking. The pressure of Poland, the Czech Republic, France and other countries was aimed at removing these emission costs and adjusting the energy transformation plan to the pace of arranging financial resources in individual countries. What is also important is paying attention to the ratio of inflation in a given country to interest rates.

Bank Pekao economists believe that the Monetary Policy Council will decide to raise interest rates for the third time in a row in December. In their opinion, the rates will increase to 1.75 per cent. Will it reduce inflation?

First, if we take inflation, which is slightly above 6 per cent in Germany, to the level of interest rates, this quotient is much higher than in Poland. The European Central Bank did not raise interest rates, which is puzzling. Maybe they don’t understand the problem. It is a fact that the dynamics of inflation in the West in relation to the level of interest rates are much higher than in Poland, and at the same time, the rate of GDP growth in Poland is much higher. If we take the ratios of inflation to interest rates or GDP growth, then we are in the best position in Europe. In addition, when we compare the quotients of inflation to unemployment, we have the lowest. Therefore, with inflation, the government should raise interest rates slightly, but in such a way as not to cause an increase in unemployment.

It was different in Poland at times…

It is true. We remember how, under Balcerowicz, the interest rates were increased without considering that they generate high unemployment. And unemployment increases inflationary pressure. During the rule of the Civic Platform, unemployment in Poland reached almost 20%. Regarding the potential increase in interest rates, we should emphasise that they are now at the pre-pandemic level, and then they were on a low level. So, we are still in a reasonably stable situation. I do not think that the Monetary Policy Council will raise interest rates in December. Why? Because all the so-called Christmas shopping takes place now, there is no demand pressure anymore. If it turned out that inflation would increase a bit, it would have to wait until January with their hike. In January, we will find out the level of increase in energy prices for households.

What do you think about the anti-inflation shield introduced by the Polish government?

This is an excellent step to reduce social tension. Due to emotions, some people perceive this inflation presently at 10 per cent. This shield reduces them. Secondly, it significantly reduces fees regarding the percentage system, reduction of VAT, excise duty, and fuel turnover tax for enterprises that trade and also benefit from it. Of course, we are counting on the fact that energy sellers will not take advantage of this situation because something like this can always happen. Since its suppliers are companies in which the state has a large share, I think that this matter can be significantly controlled. On the other hand, when it comes to fuels, we have not only Orlen, but there are also others, and something like this may appear here. However, the anti-inflationary shield will allow households to move smoothly through the winter period.

Interviewed by Piotr Czartoryski-Sziler