The Russian invasion of Ukraine has generated immediate economic consequences for the aggressor.
European sanctions, in coordination with the US, United Kingdom and other G7 allies, have forced the closure of the Russian Stock Exchange, a spectacular fall of the ruble (up to 25%), a capital control so that foreign entities do not come out in
Tomba, a loss of access to international reserves.
Or the punishment for seven banks, which have been left from this Wednesday outside the SWIFT system.
But the war, and the shock, will also have effects on a European economy still recovering from the pandemic.
In inflation form, which is once again at maximum.
In the rise in oil prices (the Brent above $ 110, higher levels almost in a decade) or gas, up to 60% these days.
But also on the frame.
The European Commission will decide on the month that comes according to its spring macroeconomic forecasts, in mid-May, if it proposes to extend one more year or not the freezing of the stability and growth pact. This was explained this Wednesday Vice President VALDIS Dombrovskis and Commissioner Paolo Gentiloni. “Our projections stipulate that the general exhaust clause will be deactivated from 2023. But, in view of the uncertainty, we will evaluate this in the spring”, the Latvian said. “The Assumption is that prices will be maintained at elevated levels throughout 2022. In general, this combination of factors will probably have a significant weight on the reduction of the expected economic expansion in the EU, but without derail it. We will have to monitor the economic situation and social with great care during the coming weeks and months, and be prepared to react to the rapidly changing circumstances, “the Italian has added.
The exact moment was discussed for months, and last week, in Paris, the institutions have already ceased to see that the option of that extension was on the table, despite the reluctance of some capitals.
But now the conditions and times have been clear.
Italy, on Tuesday, launched an open request from its Parliament so that the exhaust clauses continue as well until 2024. and countries like Spain are also completely in favor.
Community sources explain that the Commission is in favor, but seeks a balance, which there is no rupture between governments and that a clear procedure is set for all.
The reason is obvious: facilitating consolidation and preparing for relapses. Brussels hopes that growth is affected, ballasting by energy costs and uncertainty in trade and investment. “After a strong response to the pandemic, now we face a great uncertainty with the brutal Russian War, our sanctions are running and Russia is clearly feeling, but there will also be costs for EU economy and growth will slow down. At this stage it is difficult to anticipate them reliably. As the deepest sanctions begin to affect, we could see a series of scenarios. For example: greater inflation, more pressure on energy prices, an adverse impact on financial markets . The growth will continue, but it will clearly slow down. But it is a price that is worth paying to defend the democracy and the right of European nations to decide their own destiny, “said Dombrovskis.
The fiscal framework, stopped since the arrival of the pandemic, was to reactivate at the beginning of 2023, when almost all national economies have already recovered and the levels of the late 2019. The new circumstances, however, are forcing leaders to rethink the
calendar.
The same could happen with the ECB, which just a few weeks ago did not closed the door to a rise in types at the end of this same course, something that had discarded in December, after seeing that the increase in inflation may not be as temporary as
They had thought.
Community institutions, and governments, face that dilemma.
Christine Lagarde, with the prices well above the levels she wishes and with the German pressure, will have to look for a balance and also decide if she maintains the calendar withdrawal of stimuli.
If the situation in Ukraine is going to worse, and hostilities (war and economic) increase, supply chains could be affected.
The panorama with the price of energy is very negative.
And all instability inevitably affects trade and global investment prospects.
The commissioners confirmed yesterday that this spring will not open any excessive deficit procedure, but that according to what is decided in May perhaps could be contemplated the option for the countries with the worst prospects.
Right now a large majority has debt or deficit levels above the thresholds fixed in the stability pact, 60% and 3% of GDP respectively.
There are, in parallel, a deep debate in Europe about whether those rules make sense today and how to change them, but priorities have changed several times in recent months.
This Wednesday presented its tax orientations for 2023, an exercise that is fundamental for countries to do their forecasts and paintings in turn.
Brussels proposes, following the winter macro data, that the European fiscal position is generally neutral, but the feeling in interventions is that it can have a very unlikely, because everything will depend on what happens in the coming weeks.
Yesterday afternoon the finance ministers of the 27 are seen in an extraordinary ecofin, designed to talk about Russian sanctions, but also from this topic.
