"There is no means of avoiding a final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion or later as a final and total catastrophe of the currency system involved."
- Ludwig von Mises

Wednesday, September 29, 2010

The PIIGS Have More than Debt to Fear.... Peak Oil and the PIIGS

The PIIGS (the debt troubled nations of the EU: Portugal, Ireland, Italy, Greece, and Spain) seem to have an additional threat to their economies to worry about...  Peak Oil.  Now even for those that dispute peak oil, one can't ignore the fact that a nation's economy is heavily reliant on energy.  (Please see this prior post) And if the cost of that energy, predominately oil, increases, there are negative consequences to the economy.

From the European Tribune via The Oil Drum:

PIIGS are the most affected
 
One of the groups in the OECD that will suffer most with the contraction of available oil is the one formed by those more dependent of this energy in their mix, underlines Luís de Sousa. "A detail must be noted - those countries in greater difficulties will precisely be those called the PIIGS, that have an oil dependence over 45%, highlighting Greece with 58%, Portugal and Ireland with 55%, Spain with 48% and Italy with 46%, contrasting with the European Union average of 37%. Adding the four countries with oil dependence above the european average, but below 45%, we get a complete map of the zone where the 'undulating plateau' will have the greater impact, adding to the PIIGS are Austria (44%), Holland (42%), Belgium (41%) and Denmark (39%)."
 
The weakest point of the five more vulnerable countries of the euro-zone (Portugal, Ireland, Italy, Greece and Spain) is the transport sector, particularly when road-based, "deriving from geographic location, inappropriate urban and national planning or both" says Luís de Sousa. The promotion of  maritime and railway modes is underlined by this specialist, not sufficing the modernization of the  electrical infrastructure or the promotion of other sources of energy.
It's also interesting to note where the EU gets most of its oil.  From the European Commission's Energy website:



And for the American readers out there, just to give you a frame of reference of what gasoline costs here in Greece, I did the math.  Costs vary through out the country, but where I live, it is about 1.60 Euros a liter.  That's about $2.18 a liter, and there are 3.8 liters to a gallon, so a gallon of gasoline here costs $8.28!!!!   Surprisingly, I see a lot of SUVs and pickup trucks here on the island.  Granted, they don't drive as far to commute, and there is a large amount of motorcycles here as well.

Nonetheless, the cost of oil is one thing the EU can't ignore when it comes to the PIIGS.  If they want the PIIGS to have a somewhat realistic chance of adhering to Maastricht guidelines (yeah, right) without destroying their economies...  oil needs to stay cheap.  The question is, will it?

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