EU seeks to ease financial impact of Russia’s war on Ukraine

Inflation worries those responsible for the economy of the European Union (EU). And now Russia’s war against Ukraine is added. The EU seeks solutions.

“A strong and common response is needed,” EU Economic Affairs Commissioner Paolo Gentiloni said today. The only thing that is clear is that the EU will not return to a moderate debt policy and the rules of the Stability and Growth Pact next year, as planned. These mechanisms, which were suspended due to the pandemic, are now threatened by the war in Ukraine.

Commissioner Gentiloni affirmed that the debts of the States in euro are already close to 100 percent of economic production. An all-time high, without taking into account the consequences of the war.

The head of the Eurogroup, Irish Finance Minister Paschal Donohoe, assumes that the costs of the war will manifest themselves throughout Europe. But that cannot be compared with the human suffering in Ukraine. “Actually, we started this new crisis quite strongly,” says Donohoe, noting that economic growth has rebounded after the pandemic, with the support of the EU reconstruction fund. But Russian aggression will affect progress.

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“The war will have serious repercussions because the prices of goods and raw materials will rise, inflation will rise. It is also about the budgetary policies that some Member States will have to adopt to deal with energy prices and the crisis of the refugees,” warned economic commissioner Gentiloni.

“We have to be prepared, in these uncertain times, to keep our policies coordinated and constantly adapt.” At the moment, he told her, no one can make serious predictions about how the economy will evolve this year. That largely depends on the length of the war, she concluded.

German Economy Minister Christian Lindner, for his part, was cautiously optimistic, stating that growth is still possible. The European Central Bank (ECB), however, assumes in its analysis for this year rather a stagflation, that is, a combination of zero growth and currency devaluation or inflation that is too high. Gentiloni announced that the European Commission will not be able to present a reliable forecast until May.

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Some EU states want to offset the social consequences of exploding gas, oil and electricity prices with tax cuts or discounts at pumps, as proposed by France and Germany. “It’s about cushioning the negative effects,” said Lindner, but experts warn that, in the long term, “energy costs cannot be subsidized by the state.”

Linking electricity prices to gas prices, for example, now seems outdated to many. Italy and France are promoting a new EU fund for the consequences of the war, which should function in a similar way to the reconstruction fund after the pandemic. This reconstruction fund was financed with joint debt for the first time in the history of the EU and comprises up to 750,000 million euros.

However, Germany, the Netherlands, Austria and others reject a new debt-financed fund. First of all, the money that is in the pandemic fund and in the regular EU budget must be invested, according to the German Ministry of Finance. At last week’s summit in Versailles, most EU countries rejected the Italian-French initiative. New “ideas” for financing war and defense charges will be discussed, Eurogroup chief Paschal Donohoe said.

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