Financial turmoil sparked by everything from war in Ukraine to the 1956 Suez crisis offers lessons in why we should decarbonise our economy
Ukraine war-era cuts to power and heating were avoided by sourcing gas supplies elsewhere than Russia, but at higher costs. Prompt central bank action is why inflation petered out this time, unlike in the 1970s. Photograph: iStock
To curb inflation, the ECB used its main toolkit by raising interest rates, which was painful. However, it has had the effect of returning inflation to 2 per cent this year. Interest rates are now beginning to ease. Likewise, tough action by the US Federal Reserve and the Bank of England has also brought inflation back to normal in those economies.
The Ukraine war was the second major inflationary shock, especially to the European economy. In recent decades Europe has relied on cheap Russian gas for heating and to generate much of its electricity. This kept European gas prices low, even in countries such as Ireland that sourced their gas supplies closer to hand.
On this occasion, active monetary policies were deployed rapidly to choke off inflation. The ECB raised interest rates sharply, as did the US Fed. This prompt central bank action is why inflation has petered out this time around, unlike in the 1970s.
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