Kathimerini Greece Newsroom
by Rubina Spathi
Given that the pandemic, fatalities, and lockdowns made 2020 a "terrible year," it would be difficult to find an adjective to adequately describe all the suffering that 2022 brought.
Central banks are still seeing high inflation rates despite ongoing interest rate increases.
Rather worse than 2020 - pandemic deaths still occur - as it brought war back to Europe and with it the worsening of the energy crisis, inflation, and the impending, per all forecasts, global recession.
And it is these that, regrettably, appear to be left behind in the new year, as 2023 is predicted to be the next and possibly the most difficult stage of the energy crisis, with inflation squeezing real incomes and the cost of borrowing rising, and recession threatening economies and troubling central banks like the sword of Damocles.
The year that came to an end has made Europeans turn away from their energy-rich neighbor and longtime supplier of gas and oil, Russia, and has forced them to practice energy conservation, which has an impact on industrial production and home comforts.
It has brought central banks to the verge of collapse because, despite repeated interest rate increases, inflation is still at levels that seemed to be a thing of the past. Berlin and Paris were compelled to make a daring intervention to save the energy companies and industries that it had brought to the verge of bankruptcy in Germany and France.
The highlight of the year was Liz Truss's brief six-week tenure as Britain's Brexit prime minister. As foreign secretary, she had demonstrated in a meeting with her Russian counterpart that she was unfamiliar with Russia's borders. As prime minister, she attempted a radical Thatcherite-style economic reform, but it backfired and led to a humiliating retreat and forced resignation.
High-tech companies suffered the biggest setback of the year, as after being lauded for innovations like teleconferencing, telecommuting, and pandemics, they saw their shares plummet and the biggest names in the sector, like Amazon and Facebook, engage in massive layoffs.
The energy crisis, which intensified after Russia invaded Ukraine and resulted in skyrocketing gas prices that put European energy companies on the verge of bankruptcy, was a major theme of the year.
In order to engineer its energy independence from Russian hydrocarbons, it has compelled the Old Continent to make a systematic effort to secure alternative energy suppliers from the global market and to accumulate enough gas reserves.
The horror of the disruption in the operation of Nord Stream, Russia's most important gas pipeline, occupied Europe for much of the summer, instilling fear in European public opinion and frequently bombarding it with useless information.
The saga of the turbine that had been transported from Germany to Russia for repair found itself at the forefront of the news in other circumstances. Its return was postponed, and Moscow cited bureaucratic reasons such as a lack of required documents, while European anxiety grew.
LNG takes the lead
LNG, however, starred and continues to star as the only realistic risk exit for much of the year, far more prominently than the enigmatic turbine.
European countries, led by Germany, the Netherlands, and Finland, rushed to acquire LNG terminals equipped with gaseous re-gasification technology. They were up against competition from energy-intensive Asian economies, which is expected to increase in the coming year. And there is still uncertainty about whether they will be able to secure the necessary supply.
The energy crisis prompted a move that irritated Germany more than any other policy decision. The reason is the German Chancellor's EUR 200 billion package to protect the German economy.
It was made public at a time when EU members were desperately trying to find a way to address the energy crisis as a group, and it immediately became apparent that Germany was imposing rules on its allies that did not suit them while reserving the right to act independently when it was in its own interests. It is no accident that a senior European official, who went unnamed in the international press but was widely quoted, said eloquently, "With this move, Germany has raised its middle finger and shown its partners,"
Strenuous lockdowns and a failing economy
It was the place where the pandemic began. And it was the only major economy that had managed to end the pandemic's first terrible year, 2020, with positive growth while other economies were sinking into recession.
Despite this, its economy experienced an unprecedented downturn in 2022, which was repeatedly "frozen" by harsh lockdowns. President Xi's personal zero-tolerance policy on coronavirus halted economic activity, affecting China's exports, industrial production, and private consumption.
Furthermore, the harshness of its application has sparked protests and mass mobilizations unprecedented in the country since 1989 and the dramatic events in Tiananmen Square.
The successive lockdowns also caused issues for foreign industries producing in China, with Elon Musk's car company, Tesla, particularly hard hit. The contentious zero-tolerance policy was abruptly abandoned at the end of the year, leaving many questions unanswered.
The revitalization of the Chinese economy is raising hopes for a boost to the global economy and an increase in commodity demand, with energy leading the way. It is affecting oil prices, which are rising, but outbreaks are increasing dramatically within China.
However, whatever the potential for China's recovery, economists and analysts warn that it is being attempted under extremely adverse conditions, with a global recession and falling demand from its major export markets already on the horizon.
Elon Musk's repeated takeover attempts
It has drawn more attention than ever since the first month of 2022. He began investing in Twitter in January and announced his intention to purchase the company for $44 billion in April. He sold shares in his famous car company, Tesla, worth $8.5 billion to pay for the acquisition.
In the midst of a stock market crash and a crisis for high-tech companies, he attempted to back out of the acquisition after failing to secure the necessary financing.
At the end of October, he successfully completed the acquisition of the most well-known social media platform. This was followed by his inevitable legal battle with the company's shareholders, who demanded that he carry out what was agreed.
He then began a new saga that kept him in the news by firing Twitter executives, followed by mass layoffs of employees and declarations of unrestricted free speech. Donald Trump's account was even reinstated, but he quickly turned down the offer from the businessman.
A few days before the end of the year, he had the brilliant idea to shut down the accounts of journalists and ask Twitter users if they wanted him to step down as the company's CEO.
A little over 17.5 million people cast ballots, and about 57.5% of them supported his resignation. Although he had already said that it would be difficult to find someone "that stupid" to succeed him as CEO of Twitter, in theory, his resignation was a one-way street.
Interest rate hikes put an end to cheap money
2022 was the year that resoundingly debunked the persistent theories of the president of the European Central Bank and central bankers all over the world that inflation would gradually decline after the unwinding of the supply chain.
Christine Lagarde raised interest rates four times between July and the end of the year after being forced to acknowledge that the central banks' projections were off.
With the first increase of 50 basis points, they were initially somewhat restrained. As price increases accelerated, they were followed by two more aggressive increases of 75 basis points. At the end of the year, when the first signs of easing inflationary pressures started to emerge, they made another aggressive increase of 50 basis points.
Lagarde warned that additional rate increases were imminent until inflation reached the 2% target because, despite a slight moderation in November, it was still at 10.1%.
She announced that the Bank would start to reduce its portfolio starting in March of the following year and stop reinvesting the proceeds from securities that mature in conjunction with this most recent increase in borrowing costs.
In stark contrast to what she said a year ago, Lagarde predicted that inflation will remain high in the near future, with the ECB forecasting 8.4% price increases in the new year.
Jerome Powell, the chairman of the US Fed, took a more firm stance. In addition to raising dollar interest rates five times in one calendar year, he did so aggressively on four of those occasions, by 75 basis points, and only once by a half percentage point.
Since it was the most aggressive change the US Federal Reserve had decided to make since the 1980s, it was quite literally a historic turning point.
In 2022, the Bank of Turkey was another "perennial" dissonance. The Turkish lira's governor, Sahap Kavtsyoglu, cut interest rates four times in the course of the year, lowering the cost of borrowing to just 9%, despite an official estimate of 90% inflation.
He thus gained Tayyip Erdogan's approval and caused the Turkish lira and the standard of living for Turks to further decline.
Collapsed values and company bankruptcies
Not quite apocalyptic, but undoubtedly bad, has been the year for the cryptocurrency sector. It's also likely the start of fundamental changes that could lead to the industry's regulation, its demise, or its transformation into something else.
Bitcoin, the most valuable cryptocurrency, lost 60% of its value this year. Following a series of bankruptcies in the industry that sent it into a new free fall, it is now worth around $16,000, when it was worth $69,000 in November 2021.
Inflows to the industry's funds were only $498 million in 2018, compared to $9.1 billion in 2021, and the crypto market shrank by $1.4 trillion overall. Just a year before, in 2021, the industry's general perception was that it was only 2 to 3 years away from full penetration into the realm of mainstream investments.
Cryptocurrencies suffered the same consequences as the rest of the market from rising interest rates, but with the addition of the collapse of sector companies.
It all started in the spring with the demise of terraUSD, a so-called "stablecoin," a cryptocurrency that is theoretically linked to a fixed value.
This was quickly followed by the fall of luna, which was linked to terraUSD, and a domino effect hit the industry. Three Arrows Capital and the US crypto bank "froze" their customers' accounts in June before going bankrupt.
The abrupt collapse of the FTX exchange in November, which many dubbed the "Lehman Brothers of cryptocurrencies," was the final catalyst.
[This article was translated from its Greek original]