Belgium (Brussels Morning Newspaper) Finance ministers of 19 eurozone countries reached an agreement on Friday that they will be coordinating their efforts with the European Central Bank (ECB) to avoid increasing inflationary pressures as they act together to shield households and businesses from runaway energy prices.
Eurogroup president, Ireland’s Finance Minister Paschal Donohoe, stated after the meeting that the entire euro area is now confronting “an energy price shock caused by the war on Ukraine,” but stressed that the problem can be solved. “We will overcome this challenge, and we are confident in our resilience and our ability to recover”, he said.
Donohoe announced that the eurozone finance ministers have agreed to intervene in support of vulnerable households and businesses, but emphasised that they need to reduce inflation. “Failure to do so will make our citizens poorer for longer. So, our interventions will be coordinated with ECB monetary policy and aim to avoid adding to inflationary pressures,” said Donohoe.
Many European governments have already introduced or announced emergency measures to help protect households and businesses from both the soaring inflation and the fast-growing energy prices.
Speaking after the Friday meeting, European Commissioner for Economy Paolo Gentiloni said that the European Commission had provided ministers with an overall assessment of measures introduced by member state government so far, estimating that their fiscal cost added up to around 0.9% of EU’s GDP, and noting that this figure will likely increase substantially as new measures are introduced.
“We know that the key cause of these problems is Putin’s war against Ukraine,” said Gentiloni. “And we should have this very clearly in mind and repeat this to citizens and on public occasions. Putin’s war and his weaponization of Russia’s energy exports’ aim is to divide Europe and to weaken the resolve of the collective West to support Ukraine.”
Gentiloni predicted that Russian Pesident Vladimir Putin will attempt to use Europe’s economic difficulties as a weapon in the coming months. “And he will fail,” he said. The Commissioner said that confronting inflation and risks of recession means increasing energy savings, energy efficiency and developing alternative energy sources. “Solution is a cooperation between fiscal and monetary policy and energy decisions going in the right direction. And so is fixing our electricity market,” said Gentiloni.
The day before, the ECB raised its key interest rates by 75 basis points, increasing its deposit rate from zero to 0.75% – the largest single one-time interest hike since its beginnings. Its main refinancing rate was upped to 1.25%, bringing the both key rate to their highest level since 2011.
ECB head Christine Lagarde said on Thursday that the decision to rise the interest rates was made unanimously by the Governing Council. “We expect to raise interest rates further, because inflation remains far too high and is likely to stay above our target for an extended period,” said Lagarde.
The ECB has long aimed for a stable, 2-percent inflation within the eurozone, but the figure hovered close to zero during the coronavirus pandemic year of 2020 and most of 2021. This August, however, inflation jumped to 9.1%, while the central bank predicts it will peak near this level just before the end of the year.