Russia’s full-scale invasion of Ukraine has enormous repercussions for Europe and beyond

Governor Robert Holzmann opens Conference on European Economic Integration taking place at the Oesterreichische Nationalbank (OeNB) in Vienna today and tomorrow

In his opening speech, OeNB Governor Holzmann deplored the many innocent victims of the cruel bloodshed caused by Russia’s full-scale invasion of Ukraine before addressing the economic impact of the war. February 24 has marked a watershed moment that will have enormous repercussions for Europe and beyond.

In the short term, supply and demand shocks are jeopardizing price stability and economic activity, presenting central banks in particular with serious challenges. In the long term, the key question is whether the war and the sanctions will result in a bipolar world in which a transatlantic alliance is pitted against a Sino-Russian bloc. Countries in Central, Eastern and Southeastern Europe (CESEE) would be particularly affected by that, but they could also benefit from trade deviation.

However, Russia’s war against Ukraine is not the only crisis spurring transformation in Europe and the world, as Governor Holzmann was quick to point out. Other pressing concerns are the effects of the COVID-19 pandemic and climate change. While differing substantially, all three crises have important commonalities. Economically speaking, they are above all supply shocks, and they impact specific sectors unevenly. As to the climate crisis, energy production will in future also depend on the global south with its sun and wind, which in turn requires large capital flows from the global north. This could help reduce the savings glut in the north, increase the natural interest rate and facilitate conventional monetary policymaking.

Looking ahead, Governor Holzmann finished on a positive note: despite widespread doom-mongering, we might witness a new era of political and economic cooperation, even if that seems unlikely today. Such a new era could again unlock a peace dividend for the global economy.

More than 300 participants, including high-ranking representatives of both central and commercial banks as well as international experts and policymakers, will discuss these topics today and tomorrow under the heading “Economic and monetary policy under wartime conditions.”