EU leaders tackle inflation, energy shocks from Russia’s war

BRUSSELS –

After approving Ukraine’s candidacy for the European Union, leaders of the bloc turned their attention Friday on the severe economic turbulence that will be looming over the next few months as the full effects of Russia’s conflict sink in and the threat from recession rises.

The 27 EU leaders met in Brussels to discuss rising inflation, energy shocks and dwindling consumer and business confidence as well as budget pressures.

As the European Central Bank prepares the first interest rate hike in 11 years, it will force leaders to face higher borrowing costs. Christine Lagarde, President of the ECB, discussed the darkening economic outlook at the EU summit. She plans to raise rates next month as well as in September.

“We are in a difficult situation,” Swedish Prime Minister Magdalena Andersson saidon her way to the summit. “It’s very important that we have this discussion.”

The EU has been fighting a series crises over the past decade, starting with Greece’s financial woes and transatlantic disruptions under former U.S. president Donald Trump to Britain’s withdrawal from the bloc and the COVID-19 pandemic.

Friday’s announcement by the European Commission, the EU’s executive arm and flagship economic recovery program, that it plans to issue 50 billion euros ($52.7 trillion) of EU bonds in aid to member countries between July-December was part of its flagship economic revival program.

The war in Ukraine has not ended and the EU is committed to imposing more sanctions against Russia to punish it. The bloc must combat economic threats from all sides.

The EU faces major energy challenges. It has depended heavily on Russian oil and natural gas for many years to power its cars, factories, heating system, and electricity plants.

The EU has increased sanctions against Russian fuels, as a way to keep up with the American and British sanctions against Russia. The EU will ban imports of Russian coal in August. In the following eight months, it will impose an embargo on all oil products from Russia.

Moscow is disrupting natural-gas deliveries. The EU didn’t include this in its own sanctions because it was afraid of serious economic harm to the European economy. The bloc used to get about 40% of its gas from Russia before the war.

“It’s very likely that Russia will use gas and energy as a blackmail toward European Union countries,” 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 has cut gas supplies to five EU countries (including heavy importers Germany, Italy) and stopped deliveries to six members states, including Finland.

Germany on Thursday triggered 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 broad spillover effect and making the EU’s latest economic growth forecasts look too rosy.

“The impact will be enormous for Germany but also for all the other European countries,” Belgian Premier Alexander De Croo said.

In May, the European Commission saidAfter 5.4% growth, the EU’s GDP would grow 2.7% in this year and 2.3% 2023. Other forecasts have already lowered growth prospects. As the year began, the bloc was still experiencing the effects of the pandemic. The economy shrank 5.9% in 2020.

The ECB pledged to create a market backingstop to protect 19 countries that have the euro currency against market turmoil as it tackles 8.1% record inflation. Ten years ago, the debt crisis was characterized by a selloff in some euro countries’ bonds.

“The next few months will be very difficult,” saidRoberta Metsola, President of the European Parliament, attended the summit’s opening day on Thursday.

This story was contributed to by Samuel Petrequin in Brussels and Mike Corder