You’d struggle to credit it at the price of things, but Britain is currently flush with natural gas, with the surplus being sent to Europe to help replenish depleted storage facilities. This cannot be a permanent state of affairs, obviously. Domestic demand will surge in the winter, eroding the current surplus. For now, however, the flows are from Britain to Europe. The upshot is that the continent may – combined with deltism and other demand-suppressing measures – be able to get through the coming winter without total devastation or give in to Putin. Storage facilities in Germany and elsewhere are fast approaching full capacity, despite this week’s shutdown of the Nord Stream pipeline facility. Russia would seemingly rather flare the gas than supply it. But thanks in part to British supply through LNG terminals, Europe is beginning to prove that it can indeed live without Putin. Once denied the European market, there is nothing on the immediate horizon for Russia to replace it. The infrastructure required to move into Asian markets is still in the planning stages. Even if China is ready to sign up to such an obviously unreliable supplier, more than willing to use its stranglehold for political ends, the completion of the necessary LNG pipelines and terminals to replace Europe with China is still years away. The Russian leader thought he could break Europe. It is already obvious that it has failed. None of this is going to lessen the challenges facing Europe in dealing with today’s energy crisis. For much of the continent, they are far worse than in Britain – a gaping hole in supply that yawns alongside devastatingly high prices. Putin may be losing his stranglehold on European energy supplies, but he can do an awful lot of damage in the meantime. One manifestation of this damage is the weakness of both the euro and sterling. This is partly just a strong dollar story. But probably no more than half of the devaluation of the two currencies can be attributed to divergent monetary policy. And in any case, both the Bank of England and the European Central Bank appear committed to catching up with the Federal Reserve on monetary tightening. The other half of the devaluation is due to broader fears about the health of the European economy. Concern about the recessionary effects of the cost of living squeeze combined with factory closures in Germany and concerns about fiscal sustainability in both Britain and Italy in a poisonous cocktail of negative sentiment. Renewed political instability in Italy and growing questions about the affordability of Liz Truss’ unfunded tax cut promises here in Britain are hardly helping. Markets aren’t buying Team Truss’ narrative – that tax cuts will automatically lead to higher growth. Like the Foreign Secretary’s leadership rival Rishi Sunak, they fear it will only fuel inflation, forcing the Bank of England into ever sharper rate rises than are currently planned. However, at least Britain retains its own currency and therefore cannot reasonably collapse completely. Instead, the pound will simply depreciate until some semblance of fiscal discipline and the current account is restored. Italy, and other fiscally challenged eurozone members, enjoy no such backstop. The pressure is already showing in widening spreads in government bond markets.
