11 July 2022
20:25
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Volatile energy prices and high inflation until the end of 2023 are pushing European growth rates downwards. If Russia turns off the grass tap, a recession is inevitable. The budget praise for compensatory measures does not count as a sustainable solution.
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The economic crisis is gripping European finance ministers by the scruff of the neck. Growth is slowing noticeably, although it remains slightly positive today, European Commissioner for Finance Paolo Gentiloni indicates. Inflation will certainly remain high until the end of 2023, adds European Commission Vice-President Valdis Dombrovskis. In June, year-on-year inflation reached a new all-time high of 8.6 percent.
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The economic expectations, which the European Commission will publish on Thursday, will in any case be sharply revised downwards for growth and upwards for inflation. In mid-May, the Commission still assumed economic growth in the eurozone of 2.7 percent this year and 2.3 percent in 2023. For Belgium, it expected growth of 2 percent this year and 1.8 percent in 2023. Expected average inflation would be 6.7 percent this year and fall again next year to 2.7 percent. Belgium would clock in at 7.8 percent in 2022 and 1.9 percent in 2023.
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We are not yet in negative growth territory. But that can change in the event of major energy shortages.
Paolo Gentiloni
European Commissioner for Finance
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But it is dawning in the European capitals that Russia will now really turn off the gas. If that gas supply stops, a recession is inevitable and inflation will really skyrocket, is the reasoning. A recession seems inevitable in that scenario. “We are not yet in negative growth territory. But that could change with major energy shortages,” Gentiloni said.
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Shutdown plans
Fears of cutting off gas supplies have increased in recent days. The International Energy Agency warned that Russia threatened to block the supply. In Germany, maintenance work started on Monday on the main supply pipe for Russian gas, Nord Stream 1. Berlin fears that the pipeline will remain closed on the Russian side after the work, which will last ten days. Italy and Austria are also currently experiencing a sharply reduced gas supply.
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If the gas supply falls sharply or comes to a complete standstill, certainly in large industrialized countries such as Germany and Italy, this will not only have consequences for our own population and industry, but also for the rest of Europe. Germany already has a roadmap for disconnecting users, Belgium is tightening its shutdown plans. The European Commission is coming this month with a European shutdown plan that should avoid chaos.
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Investments
The economic downturn comes just at a time when the finance ministers wanted to tighten budget rules. The Commission will not present a proposal until the autumn. The normal, strict budget rules for the budget and government debt will therefore remain in brackets at least until the end of 2023.
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“The crisis in Ukraine and its impact on supply will stay with us for a long time. We have to realize that collectively we have become a bit more vulnerable,” said Dutch Finance Minister Sigrid Kaag. More coordination and solidarity in Europe will be much needed.
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The crisis in Ukraine and the impact on supply will stay with us for a long time. We have to realize that collectively we have become a bit more vulnerable.
