EU leaders battle inflation and energy shocks from Russia’s war

BRUSSELS — A day after endorsing Ukraine’s candidacy for the European Union, the bloc’s leaders turned their attention on Friday to the severe economic turmoil looming in the coming months as the full impact of Russia’s war deepens and the threat of recession increases.

The 27 EU leaders met in Brussels to deal with rising inflation, energy shocks, waning business and consumer confidence and mounting budget pressures.

Leaders will also have to deal with higher borrowing costs as the European Central Bank prepares to raise interest rates for the first time in 11 years to combat 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 had spent the previous decade battling a range of crises, from Greece’s financial woes and disruptions to transatlantic trade under former US President Donald Trump, to the UK’s withdrawal from the bloc and the COVID-19 pandemic. 19.

The EU’s executive arm, the European Commission, on Friday announced plans to issue 50 billion euros ($52.7 billion) of EU bonds to help member countries between July and December as part of its flagship program. of economic recovery.

With no end in sight to the war in Ukraine and the EU committed to intensifying 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 help power cars, factories, heating systems and power plants.

Under pressure to keep up with American and British penalties against Russia, the EU has since April expanded what were already unprecedented sanctions, targeting Russian fuel. The ban on Russian coal imports will begin in August and an embargo on most Russian oil will be implemented within the next eight months.

Meanwhile, Moscow itself is halting deliveries of natural gas, which the EU has not included in its own sanctions for fear of seriously damaging the European economy. Before the war, the bloc received about 40% of its gas from Russia.

“Russia is very likely to use gas and energy as blackmail for EU countries,” said Finnish Prime Minister Sanna Marin. “Russia will use this as a tool, as a weapon against us, so we have to help each other.”

Moscow has reduced gas supplies to five EU countries, including heavy importers Germany and Italy, and cut deliveries to six member states such as Finland.

Germany on Thursday triggered the second phase of a three-step emergency plan for gas supplies, saying the country faced a “crisis”. Weaknesses in Germany, Europe’s biggest economy, risk having a wide ripple effect and making the latest EU economic growth forecasts look too optimistic.

“The impact will be huge for Germany, but also for all other European countries,” said Belgian Prime Minister Alexander De Croo.

In May, the European Commission said EU economic output would expand by 2.7% this year and 2.3% in 2023, after a 5.4% growth in 2021. Other forecasts have already reduced growth prospects. Earlier this year, the bloc was still facing effects – including higher budget deficits – from the pandemic, which caused the economy to shrink 5.9% in 2020.

The ECB has committed to creating a market barrier to protect the 19 countries that share the euro from market turmoil as they face record inflation of 8.1%. The liquidation of the bonds of some euro countries was a central feature of the debt crisis a decade ago.

“The next few months are going to be very difficult,” said European Parliament President Roberta Metsola, who attended the first day of the summit on Thursday.


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Mike Corder and Samuel Petrequin in Brussels contributed to this story

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