A day after endorsing Ukraine’s bid to join the European Union, the bloc’s leaders turned their attention Friday to the severe economic turmoil ahead in the coming months as the full impact of Russia’s war sets in. and the threat of recession increases.
The 27 EU leaders met in Brussels to grapple with rising inflation, energy shocks, declining business and consumer confidence and mounting budget pressures.
Leaders will also have to contend with higher borrowing costs as the European Central Bank prepares to raise interest rates for the first time in 11 years to counter runaway price increases. ECB President Christine Lagarde, who plans to raise rates next month and again in September, joined the EU summit to discuss the bleak economic outlook.
“We are in a difficult situation,” Swedish Prime Minister Magdalena Andersson said on her way to the summit. “It is very important that we have this discussion.”
The EU has spent the past decade battling a series of crises, ranging from Greece’s financial problems and transatlantic trade disruptions under former US President Donald Trump to Britain’s departure from the bloc and the COVID-19 pandemic.
Now, with no end in sight to the war in Ukraine and the EU committed to escalating sanctions against Russia as punishment, the bloc must fight economic threats on multiple fronts.
Energy poses a major challenge for the EU, which for years has relied heavily on Russian oil, natural gas and coal to power cars, factories, heating systems and power plants.
Under pressure to keep pace with US and UK sanctions against Russia, the EU has since April expanded what were already unprecedented sanctions by targeting Russian fuels. The ban on Russian coal imports will start in August and the embargo on most of Russia’s oil will be gradually implemented over the next eight months.
Meanwhile, Moscow itself is cutting off deliveries of natural gas, which the EU did not include in its own sanctions for fear of severely damaging the European economy. Before the war, the bloc got around 40% of its gas from Russia.
“It is very likely that Russia will use gas and energy as blackmail towards the countries of the European Union,” Finnish Prime Minister Sanna Marin said. “Russia will use it as a tool, as a weapon against us, so we have to help each other.”
Moscow cut gas supplies to five EU countries, including big importers Germany and Italy, and cut deliveries to six member states, including Finland.
Germany on Thursday activated the second phase of a three-stage emergency plan for gas supplies, saying the country faces a “crisis”. Weaknesses in Germany, Europe’s largest economy, risk having a large spillover effect and making the latest EU economic growth forecasts look too rosy.
“The impact will be huge for Germany, but also for all other European countries,” Belgian Prime Minister Alexander De Croo said.
In May, the European Commission said the EU’s economic output would expand 2.7% this year and 2.3% in 2023 after growing 5.4% in 2021. Other forecasts have already downgraded the outlook. of growth. At the start of this year, the bloc was still grappling with the effects, including higher budget deficits, of the pandemic, which caused the economy to shrink 5.9% in 2020.
The ECB has pledged to create a market backstop to shield the 19 countries that share the euro from market turbulence while it tackles record inflation of 8.1%. A sell-off of some euro nations’ bonds was a central feature of the debt crisis a decade ago.
“The next few months will be very difficult,” said European Parliament President Roberta Metsola, who attended the first day of the summit on Thursday.
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Reference-www.independent.co.uk