Russia's invasion of Ukraine will slow economic growth across the euro zone while pushing energy prices even higher, the EU's top finance officials have warned.
European Central Bank head Christine Lagarde said the main impact of the war in Ukraine was likely to come through higher energy prices and the uncertainty that will hit business confidence and consumption; while Eurogroup president Paschal Donohoe warned of economic consequences being incurred from the sanctions being placed on Russia.
"We know there will be consequences for standing up for our European values. We know there will be economic costs," Mr Donohoe said. "These costs will emerge over the coming weeks and months."
He added that finance ministers will review fiscal plans in the coming weeks to make sure they can support the economy if necessary.
“While we have started to consider the consequences of the last few days’ events, we do so with an economy that is already strong, one that is already resilient.”
Sanctions
EU leaders agreed on Thursday to impose new sanctions on Russia’s financial, energy and transport sectors, introduce export controls, and blacklist more Russians after Moscow launched an invasion of Ukraine. This means countries that sell their products to Russia will see trade revenues fall.
“What we know is that the two main channels through which the euro area economy will be affected will be through energy prices and through confidence or the uncertainty channel; not so much through trade, which is limited between Russia and the euro area,” Ms Lagarde told a news conference after a meeting of euro zone finance ministers and central bank governors.
“Persistent uncertainty will probably be a drag on consumption and investment, and will impede growth,” she said.
Mr Donohoe travelled to Paris to chair Friday’s meeting of the Eurogroup and attend an informal Ecofin meeting as the situation in Ukraine intensified.
“The impact will be different for different member states,” he said. Russia, Europe’s main energy supplier, could retaliate by curbing gas, oil and coal sales to the EU, though this would be costly for Moscow.
The European Central Bank’s chief economist, Philip Lane, told fellow policymakers that the Ukraine conflict may reduce the euro zone’s GDP by between 0.3 per cent and 0.4 per cent this year. The European Commission forecast this month that economic growth in the 19 countries sharing the euro would be 4 per cent this year, already below the 4.3 per cent expected last November, because of more Covid-19 infections, supply-chain bottlenecks and record inflation caused by energy prices.
The commission has said the Russian invasion of Ukraine makes the 4 per cent growth forecast more uncertain.
EU sanctions will also target Russian elites and make it tougher for diplomats to travel, but the EU leaders opted not to curb Russian energy imports, or – after objections from Germany and Italy, among others – cut Russia off from Swift, the dominant system for global financial transactions.
"Ireland and the EU strongly condemn Russia's unjustified attack on Ukraine," Mr Donohoe said. "In these dark hours, our thoughts are with Ukraine and the innocent women, men and children as they face this unprovoked attack and fear for their lives," he said, saying Russia will be held accountable. – Additional reporting Reuters
