Renewables are a structural hedge against fossil fuel shocks. In power markets, the more often wind, solar, hydro and nuclear cover demand, the fewer the hours in which gas sets the marginal price, and the weaker the link between global gas markets and domestic electricity costs.
Given the persistent disruptions from the closure of the Strait of Hormuz, @cronco.bsky.social and I have written a substack article about how Europe’s fossil fuel dependence is now as much about macroeconomic resilience as climate. A 🧵.
#Iran #Inflation #Energy
open.substack.com/pub/outsampl...
The Return of the Master was my first proper introduction to Keynesianism as a student. It taught me the necessity of questioning prevailing orthodoxies, especially in economics, and to value the search for alternative perspectives in a field that for a long time felt dominated by rigid consensus.
There's a global race to secure EV battery gigafactories & reduce reliance on China.
But not all clean-tech projects are created equal. Some generate good jobs & domestic capacities, others produce ecological harm & low value-added enclaves.
New paper & thread 👇
www.tandfonline.com/doi/full/10....
The fiscal consolidation process began last summer and is unrelated to the Iran war. The turmoil within the governing coalition reflects, in part, resistance to fiscal consolidation and administrative reform, but mostly opposition to the reduction in discretionary transfers to local authorities.
The Return of the Master was my first proper introduction to Keynesianism as a student. It taught me the necessity of questioning prevailing orthodoxies, especially in economics, and to value the search for alternative perspectives in a field that for a long time felt dominated by rigid consensus.
But the alternative is worse. It is a future in which energy shocks continue to drain hundreds of billions from the European economy, trigger emergency fiscal interventions that governments can increasingly ill afford, and encourage a political backslide toward dirtier fuels.
None of this is cheap or frictionless. A more electrified economy requires investment, system flexibility and political persistence.
Europe should move faster on electrification, renewables, storage and grid integration, because those investments reduce exposure to volatile global fuel markets rather than merely shifting that exposure from one foreign supplier to another.
There is already some evidence that the oil price shock is beginning to affect demand for EVs as petrol prices surged after the start of the Iran war, while fuel crises in parts of Asia-Pacific have similarly boosted EV demand.
In transport, higher renewables use and wider EV adoption can weaken exposure to fossil fuel price shocks by shifting part of household and firm transport spending away from volatile global oil markets and towards electricity.
Europe remains highly exposed outside the power sector. Fossil fuels still dominate transport and still account for a large share of energy use in households and industry.
A cleaner power mix can materially weaken an important transmission channel from fossil fuel markets to inflation, even if it does not eliminate broader exposure altogether.
Renewables are a structural hedge against fossil fuel shocks. In power markets, the more often wind, solar, hydro and nuclear cover demand, the fewer the hours in which gas sets the marginal price, and the weaker the link between global gas markets and domestic electricity costs.
After 2022, European countries cut gas demand, filled storage and diversified supply. But the deeper shift, towards electrification and structurally lower fossil fuel demand progressed more unevenly and the green transition has even lost much of its earlier political momentum.
The 2026 Iran war has reinforced the lesson the lesson we should’ve learned after Russia’s invasion of Ukraine. As long as Europe remains tied to volatile global oil and gas markets, geopolitical disruption will keep feeding into inflation and weaker growth.
Given the persistent disruptions from the closure of the Strait of Hormuz, @cronco.bsky.social and I have written a substack article about how Europe’s fossil fuel dependence is now as much about macroeconomic resilience as climate. A 🧵.
#Iran #Inflation #Energy
open.substack.com/pub/outsampl...
New QJE paper measures spending flows between 1000s of small groups of consumers and producers, government, rest of the world. Most consumer spending stays domestic, esp in rural, older, less-educated areas->higher fiscal multipliers; targeting "left-behind" groups boosts economy
NEW: "Europe’s dependence on US foreign military sales: evidence for policy makers from a new database. " Our latest academic article with @juanmejinoecon.bsky.social www.tandfonline.com/doi/full/10....
I explored this issue at greater length in a Substack post that revisits the current shock through the lens of the 2021 to 2023 #inflation debate:
open.substack.com/pub/outsampl...
The ECB should avoid rushing into rate hikes in response to surging energy costs unless there is clear evidence of second-round effects that could make inflation more persistent. Otherwise, it risks jumping the gun, weakening growth, and doing little to address the underlying problem.
Sovereign spreads over Bunds have begun to reverse some of that earlier narrowing after the US-Israel strikes on Iran and the escalation to a direct military conflict in the Gulf. More below on geopolitical risk and yields:
open.substack.com/pub/outsampl...
Through 2024 and 2025, euro area spreads narrowed steadily as ECB easing cumulated and confidence in euro area convergence improved. By late 2025, spreads had narrowed considerably. Now that is beginning to change.
There’s only so much space to argue properly on Bluesky.
Ann Pettifor: "Tackling inflation with rate hikes while refusing to take regulatory action to deal with spiralling food prices, rocketing profits and falling real wages - means central bankers are acting politically."
@annpettifor.bsky.social
open.substack.com/pub/annpetti...
Europe needs to prepare for a longer disruption, drawing on the lessons of the 2022 energy crisis following Russia's invasion of Ukraine.
The EU is structurally exposed to shocks of this kind. Europe remains a large net energy importer, so supply-side geopolitical disruptions tend to worsen its terms of trade, weaken the euro, and intensify inflationary pressure.
The geopolitical shock triggered by the US and Israeli attack on Iran is again being transmitted through energy prices. When geopolitical shocks threaten major oil and gas infrastructure or maritime routes, they raise the risk of persistent supply disruption and push up energy costs.
The relationship between GPR and euro area vulnerabilities is contingent and depends on the shock. But it's consistent enough to matter. The euro area remains structurally more exposed than the US to shocks of this kind and brings the discussion back to the unfinished architecture behind the euro.
Historically, major geopolitical shocks often pushed investors into Treasuries and Bunds and compressed yields. Since, 2022, government bonds on both sides of the Atlantic are having their safe haven status tested as geopolitical risks have lifted energy prices and inflation expectations.