The invasion of Ukraine has already damaged economic growth in Europe, and Russian cuts to gas supplies pose the risk of a worsened economic outlook, Minister for Finance Paschal Donohoe has warned.
Mr Donohoe, president of the Eurogroup, spoke after chairing a meeting in Brussels of the finance ministers of the 19 countries that use the euro.
“Our growth is lower than it would have been but for the impact of the war. And we also acknowledge that changing energy availability could impact that growth forecast further,” he said after being asked about a potential shutting-off of gas supplies by Russia.
Government support for people affected by high energy prices should be targeted to the most vulnerable, he said in a separate statement, saying “we cannot collectively spend our way out of high energy prices”.
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Supplies from Russia account for about 40 per cent of Europe’s natural gas, mostly transferred through pipelines, and there are fears the regime of Vladimir Putin may choose to stop the flow in retaliation for western sanctions and support for Ukraine.
Russia suspended the crucial Nord Stream 1 pipeline this week for maintenance, and there are concerns the interruption could continue, preventing the ability of countries to refill their gas storage facilities before winter.
European commissioner for the economy Paolo Gentiloni said EU economies had so far shown resilience in the face of economic headwinds, helped by a post-Covid bounce in activity, high household savings and low unemployment rates. But he warned that governments should be ready for the picture to change.
“Member states should stand ready to adapt their policies as needed to a rapidly evolving situation. And evolving, in many cases, with downside risks,” Mr Gentiloni told journalists following the Eurogroup meeting.
“We all know that our economy is navigating troubled waters. The invasion of Ukraine has dented confidence, pushed inflation higher, created a situation of high uncertainty and is triggering global economic difficulties.”
There may be “stormy weather coming”, he warned.
“The crucial factor for a possible adverse scenario is exactly the supply of energy. This was already clear in our spring forecast, and this risk did not diminish in the weeks that we have behind us, [it] is still there, and increasing.”
A full meeting of EU finance ministers is set for Tuesday. Hungary is expected to once again block agreement on the EU-wide adoption of a 15 per cent minimum corporation tax for large multinational companies, which won the support of Ireland last year in a significant compromise.
Over the weekend, the administration of president Joe Biden in the United States announced it was ending a 1979 tax treaty with Hungary, which has a 9 per cent corporation tax rate, and which prevents double taxation of residents in a move designed to pressure Budapest to remove its veto of the tax reform measure.
Democrats fear the window to get the landmark deal agreed by 136 countries at the OECD is narrowing, due to the difficulty of passing it through the House of Representatives if republicans increase their seats in midterm elections in November.
The Eurogroup meeting also discussed the development of a digital euro, which Mr Gentiloni said should be designed to encourage innovation but should not be allowed to increase systemic risks. He said it was not intended to replace cash.
The 19 member states did not reach the 80 per cent support required to choose a replacement for Klaus Regling as managing director of the European Stability Mechanism, and are due to vote again in September.
At that point, Croatia is due to join the Eurogroup as an observing member ahead of the country’s expected adoption of the euro in January.
