Regional sensitivities to the consequences of the war in Ukraine

April 2022

The war in Ukraine will affect local and regional development beyond Ukraine. In the framework of a study for the European Committee of the Regions, we are currently analysing how the war might affect cohesion in the EU. In this blog post we share first reflections and invite for comments and discussions which may help to better understand the implications the war may have for local and regional development – being well aware that there are considerable uncertainty about how our new realities will look like in the years to come.

To start with, we certainly acknowledge that any consequences on local and regional development in EU member states are neglectable compared to the consequences in Ukraine. To underline this, we have opted for a single exposure indicator: Having the act of war and armed fights ongoing in one´s own territory or not. This means only Ukraine is directly exposed, whereas all EU member states are indirectly exposed to the war.

Regional sensitivities

When it comes to the sensitivity of regions in the EU, the picture is rather varied and depends largely on the economic structure, socio-economic profile and the energy dependency. A first aggregated picture of various regional sensitivities to the consequences of the war in Ukraine shows a clear East-West divide. Running from Finland in the North to Greece in the South, almost all regions in the countries along the eastern border of the EU and in Czechia show high sensitivities for a number of sensitivity indicators analysed. While only a few metropolitan areas in the other countries do so, e.g. Rome and Berlin.

Regions with medium high sensitivities are mainly located along the Mediterranean, incl. Cyprus, most of Italy, large parts of Spain and Portugal, as well as in Germany.

This analysis builds on a set of indicators depicting the regions’ energy dependency, economic structure and socio-economic profile. For each of these we have selected a few sensitivity indicators to provide first insights:

Energy dependency. The war in Ukraine has sent energy prices to new heights, which affects in particular energy intensive industries. Furthermore, the war illustrates Europe’s dependency on energy imports from Russia, especially gas. This has been translated into four sensitivity indicators:

  • Energy intensity. The amount of energy required to produce 1 EUR in added value varies across industries. The increasing energy prices and risks of energy shortage affect in particular industries with high energy intensities, e.g. heavy industries. In Estonia, Poland, Czechia, Hungary, Slovakia, Bulgaria and also in Malta the energy intensity of the industries is the highest.
  • Gas imports from Russia. Europe’s dependency on the important of Russian gas and increasing urgency to find replacement and discussions about stopping gas imports affect in particular countries where Russian case stands for a substantial share of the gas import. Among these are e.g. Germany, Italy, Poland, Slovakia, Czechia, Latvia, Hungary, Bulgaria and Finland.
  • Oil imports from Russia. Besides gas, Russia also exports considerable amounts of oil to the EU. Also here is an urgency to find replacements and a discussion about import stops. The most affected countries are Finland, Hungary, Lithuania, Poland and Slovakia.
  • Solid fossil fuels import from Russia. Russia is also an exporter of coal and fossil fuels. In early April 2022, the EU has decided to stop the import of solid fossil fuels from Russia. This affects mainly those countries with higher shares of their coal imports coming from Russia, such as Bulgaria, Cyprus, Denmark, Estonia, Greece, Croatia, Lithuania, Latvia and Poland.

Economic structure. The war in Russia affects a wide range of economic operators. In particular those trading with partners in Ukraine, Russia and Belarus are affected as these value chains are largely disrupted, be it because of the war or because of sanctions. Furthermore, the impacts of the war affect a range of economic sectors incl. e.g. agriculture and tourism. This has been translated into four sensitivity indicators:

  • Trade export to Ukraine, Russia and Belarus. Export to these countries has been heavily affected by the war and the sanctions. This affects in particular regions with high shares of exports to these countries. These are to be found in Estonia, Latvia, Lithuania, Finland and Poland.
  • Trade import from Ukraine, Russia and Belarus. Imports from the countries have largely come to a hold either because of the war in these countries or because of sanctions and trading restrictions. This affects in particular regions which have comparably high shares of imports from these countries, as either final products or inputs to more complex value chains are missing. This is e.g. it the case in Bulgaria, Estonia, Finland, Lithuania, Latvia and Poland.
  •  Agriculture. One sector which is particular affected by the war is agriculture as the war e.g. implied considerable increases of costs for fertilizer as well as energy which is needed in agriculture. This affects in particular regions in Bulgaria, Greece, Lithuania, Italy, Poland and Romania. As for many other sectors the impacts are more granular on particular segments which cannot easily mapped at European level.
  • Tourism. Just as the tourism sector recovers from the COVID-19 pandemic, the war in Ukraine poses new challenges to many tourist destinations. This concerns in particular those in relatively close proximity to Ukraine, as well as destinations with traditionally high shares of Russian tourists. Considering changes in booking levels as well as the importance of tourism for the regional economy, tourism destinations in Austria, Bulgaria, Cyprus, Czech Republic, Greece, Spain, Finland, France, Hungary, Italy, Portugal and Slovenia are particularly affected.

Socio-economic profile. The impacts of the war have a strong human or social component in the EU. This is particular the case for the refugees coming to the EU and subsequently also affecting the cities and regions where they go to. It also affects people living in the EU e.g. via increasing inflation rates, which makes life more cumbersome for less well-off people and households. The social dimension has been translated into four sensitivity indicators:

  • People at risk of poverty. Inflation affects in particular people with limited financial resources. As a proxy for this the regional share of people at risk of poverty is an indication on where in Europe inflation in wake of the war affects regions more. This is e.g. the case in Belgium, Bulgaria, Greece, Italy, Lithuania, and Romania.
  • Ukrainian Refugees. People fleeing from Ukraine need considerable support. Ensuring this support requires extra efforts from administrations and people in the regions where they arrive first. Unfortunately, there is no comprehensive data on where Ukrainian refugees go to. In most cases they are only registered in their first EU country of arrival. Accordingly, regions in Poland, Hungary, Romania and Slovakia are most affected.
  • Ukrainians living in the region. Provided that Ukrainians living in the EU prior to the start of the war are particularly affected by the events and that it is expected that many Ukrainian refugees ‘travel on’ to places where there are more people from Ukraine, these places might be more affected than others. This concern mainly cities in Czechia, Germany, Estonia, Italy, Latvia and Poland.
  • Russians living in the region. With the increasing sanctions on Russia and Russian citizens in the EU, and growing social tensions concerning Russians, also places with comparably high shares of Russian population in the EU are affected by the consequences of the war. Such regions are to be found among others in Estonia, Latvia, Lithuania, Austria, Czechia, Germany, Finland, Spain, Italy, the Netherlands, Poland and Sweden.

These sensitivities have been translated into indicators for which EU-wide data is available and brought together in a combined negative sensitivity index shown in the map.

Preliminary conclusions

Going beyond above geographical patterns, the war in the Ukraine, once again, presented the EU with a common enemy which strengthens solidarity between member states. This question remains whether this solidary in times of crises brings members states and people in the EU closer together or just temporarily glosses over conflicts and divides in the EU. In the latter case, these divides – e.g. on the rule of law and the path to carbon neutrality – risk to make a comeback and be much stronger when the immediate crisis is over. In this way, the impact of COVID-19 and the war in Ukraine might become much stronger and fundamental to the EU.

Similarly to the COVID-19 pandemic, the war in Ukraine reminds us of the importance of resilience and the capacity to act in face of unexpected events and wildcards. These capacities are closely linked to the question of resilience and the ability to deal with uncertainty. In general terms, resilience describes the ability of a system to ‘bounce-back’ or return to its pre-shock position. However, in a foresight and future-oriented context, resilience concerns the ability to reorganise rather than to ‘bounce-back’, otherwise one risks standing empty handed. This links to the debate about the ‘imaginary crisis’ and need to move from ‘what is’ to ‘what if’ to create the future we want dwelled on in an earlier blog post.

The final results of this first analysis will be presented in a report to the European Committee of the Regions later on summer 2022.

By Kai Böhme, Marcela Mäder Furtado, Maria Toptsidou

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