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The European economies witnessed record inflation rates in the last few years, due to the “polycrisis” driven by the pandemic and then the war in Ukraine. In such a scenario, both the European Central Bank (ECB) and the EU members’ governments focused on reducing inflation and fighting for fiscal stability while trying to secure the purchasing power of their citizens in order to avoid dangerous effects in the social sphere. This strategy didn’t work properly, or at least there have been great differences from state to state, and ultimately the ECB managed to contain the inflation rate for a few months. 

What both the EU institutions and the countries’ leaders want to avoid now is a new rise in inflation, propelled by the crisis in the Red Sea. The EU’s Economy Commissioner, Paolo Gentiloni, recently said that what is happening in the region “is not, for the moment, apparently creating consequences for energy prices and inflation.” The situation should be monitored very closely, Gentiloni observed, as energy supplies are not the only features that can pose a threat to the EU’s economic stability. The supply chain risks being hit by the attacks in the Red Sea, something that would affect the whole industrial system in Europe as well as the logistics that allow millions of citizens to shop and enjoy services in their everyday lives. 

Thus, the consequences of the Red Sea crisis and of further destabilization in the whole Middle East region would be inevitably hard to manage for European economies in terms of growing costs of living, potential GDP contraction, rising unemployment, and social instability. With the European elections approaching, all these issues can become crucial in the political debate and shape the decisions of voters across the EU, with populist and far-right parties taking advantage of such problems in the polls. 

Written by: Francesco Marino