It is not about the "Winter of the great loneliness", the novel of our great writer Ismail Kadare, nor can we draw parallels with it. Our theme is the difficult economic winter in front of us, of a combined energy crisis, food crisis, increase in prices and inflation. This one is predicted as probably one of the hardest winters after the WWII. Obviously, the conditions, terrain, factors, impacts and consequences are not the same as 50-60 years ago. So what and why is the upcoming winter so scary?

DIFFICULT WINTER FOR ECONOMY AND ENERGY

The difficulties in economy and energy sector have befallen upon the developed countries, the region and, without a doubt, Albania as well.

While the pandemic is fading away and its consequences started to recover, a new crisis came as a result of Russia's war in Ukraine, which quickly reflected an energy crisis, (oil, gas, electricity), the disruption of the raw materials supply chain, a food security crisis, increase in prices and inflation. The months of war continue and these phenomena continue to deepen as we are already on the eve of winter.

In this situation, governments have taken their initiatives for support packages for the needy and their economies while Central Banks have increased vigilance.

However, everyone thinks that Europe is heading for recession. What’s uncertain is how deep and severe this recession will be, whether it will be threatened by stagflation and how long this crisis will last. There are several factors and the reaction to them, that will determine this situation.

First, the severity of the crisis is related on how long the economic decline will last, and which measures will be taken against the energy crisis...

This week the energy prices marked a once unimaginable increase: more than €290 / mwh for standard gas to be delivered in the fourth quarter of the year (pre-pandemic price was around €30); and more than €1,200 / mwh for daytime electricity for the same quarter in Germany (from around €60).

Because gas is the marginal fuel in most European electricity markets, it sets the price for energy in general. The European economy went into crisis, despite its preparedness. Meanwhile, the labor market is still holding up and is relatively healthy, with unemployment running at 6.6% by European standards and 3-4% in the US, a bit unusual for times of crisis. Wages are likely to rise in the coming months as support packages are expected to start rolling out in many countries.

Second, consumer confidence fell at the start of the war, but consumption was not greatly shaken. But the signals do not seem positive in the following months due to: Lack of gas due to Russian dependence (interruption of Russian gas supply); because firms are still working with past orders, but this situation will not last forever; and because the decline reflects a weakening of the global economy and in particular the Chinese one.

Thirdly, consumer spending on services was put in contradiction between their growth in the summer tourism period, and their introduction into "saving mode" on the eve of a long and cold winter.

Finally, the European countries are clear that the "energy shock" coincides with the tightening of monetary policy, the increase in interest rates of the European Central Bank (which has decided to return the annual inflation to its target of 2%, from 9.1% registered in August) and to the Central Banks of member countries and the region.

In anticipation, short-term and long-term European bond yields have risen over the past month. Despite this, the euro has continued to decline, equaling the dollar for the first time in two decades. This seems to reflect a worsening outlook for Europe's economy. All this suggests that the European economy is on its way to a recession and is threatened by stagflation, led by Germany, Italy and Central and Eastern Europe.

SOCIAL RESISTANCE PACKAGES

Faced with this crisis, the governments, state legislators and international institutions have taken a series of supportive measures to minimize its consequences. Despite their variety, these packages have their commonalities, more specifically:

1-All aim at short and medium term measures.

2- The direct financial support of the needy strata, pensioners, is intended.

3-Package to cope with the energy crisis.

4-Supporting the economy to reduce imports of goods, raw materials, which bring price increases and imported inflation.

5-Encourage businesses toward the new opportunities created by technological development, the 4.0 revolution, but also by the crisis itself.

All countries have taken their own measures. France has restarted nuclear power plants, Germany coal mines and a series of measures to save energy use, Italy also, building gas supply infrastructures to break away from Russian dependence, orientation to new production alternatives energy and other markets etc. All countries are correcting salaries and pensions with inflation, increasing funding for unemployment or the needy, subsidy measures for agricultural products, etc., etc. Greece declared "a flood of money in support of family budgets and the economy" even though it emerged from the debt crisis inherited from the years 2008-2013.

ALBANIA’S SOCIAL RESISTANCE PACKAGE

I think the Albanian government reacted in time and with the right instruments, with clear objectives and goals in its package announced a few days ago. Naturally, there will always be debates, but each package reflects the governments' financial capabilities. Our package has at its core the social resistance to the consequences of the global energy crisis, as well as the war in Ukraine, on prices and inflation. With a forecast of a small contraction of economic growth for this year, with an increase in prices and inflation, so far the lowest in the region, it seems that the Albanian economy, so far, is out of danger of recession and inflation.

More concretely:

1-The minimum wage will increase from 32 thousand ALL, declared almost three months ago, to 34 thousand ALL.

2. The government indexes (for the second time) pensions to a total of 9.5%. So 36 million dollars will be made available to index the pensions of 673,542 pensioners.

3. For 434 thousand beneficiaries, the government will compensate with cash the increase in the prices of the basket, which based on INSTAT's calculation is 7%, or turned into an increase over the average consumption calculated before the strike is ALL 2500 plus.

4- The government will give ALL 3 thousand for 3 consecutive months as compensation for the increase in basket prices, for: pensioners who receive less than half of the minimum wage; disability pensioners; pensioners living alone; persons with disabilities, paraplegics, tetraplegics or blind people and all families who are currently in the economic assistance scheme.

5- Support for subsidizing agriculture, and especially for farmers with tax-free oil, will amount to ALL 1.4 billion or 14 million USD, with an additional plus of 5 million USD, which will be released immediately.

5- The government will support the users of urban city and intercity lines, immediately pouring 5 million dollars to pay the difference in the ticket price.

6 – It will introduce 2 months earlier, the law on the reduction of the tax on wages up to 40 thousand leks and the halving of the tax on wages up to ALL 50 thousand, as well as the reduction of the tax on wages from 150 thousand to 200 thousand leks, which means, 56% of those in Albania who live by their salary, pay Zero tax for it.

7- The government has taken a series of other measures related to the effective management and saving of electricity, for new alternative sources of energy, etc... Also, it immediately decided to add another USD 200 million to the financing of electricity price shield for households and small businesses.

These and a number of other ongoing measures, according to the progress of the crisis, are a fair orientation, according to the possibilities in support of family budgets and our economy.

*Academician, economy expert, former MP and Finance Minister, Panorama Sep. 19, 2022)