BRUSSELS (AP) — A day after endorsing Ukraine’s bid for European Union membership, the bloc’s leaders turned their attention on Friday to the severe economic turbulence looming over the coming months as the full impact of Russia’s war is sinking in and the threat of recession is growing.
The 27 EU leaders gathered in Brussels to deal with rising inflation, energy shocks, declining business and consumer confidence and mounting fiscal pressures.
Policymakers will also face higher borrowing costs as the European Central Bank prepares to raise interest rates for the first time in 11 years to counter runaway price increases. ECB President Christine Lagarde, who plans to raise rates next month and again in September, joined the EU summit to discuss the darkening economic outlook.
“We are in a difficult situation,” Swedish Prime Minister Magdalena Andersson said on her way to the summit. “It’s very important that we have this discussion.”
The EU has spent the previous decade battling a series of crises, ranging from Greece’s financial woes and transatlantic trade disruptions under former US President Donald Trump to Britain’s departure from the bloc and the pandemic of COVID-19.
The EU’s executive arm, the European Commission, on Friday announced plans to issue 50 billion euros ($52.7 billion) in EU bonds to help member countries between July and December in as part of its flagship economic recovery program.
While the war in Ukraine is not over and the EU has pledged to tighten sanctions against Russia as punishment, the bloc must fight economic threats on multiple fronts.
Energy is a major challenge for the EU, which for years has relied heavily on Russian oil, natural gas and coal to power cars, factories, heating systems and power plants.
Under pressure to keep pace with US and UK sanctions on Russia, the EU has since April extended already unprecedented sanctions targeting Russian fuels. A ban on Russian coal imports will begin in August and an embargo on most oil from Russia will be phased in over the next eight months.
Meanwhile, Moscow itself is disrupting natural gas deliveries, which the EU has not included in its own sanctions for fear of seriously harming Europe’s economy. Before the war, the bloc received about 40% of its gas from Russia.
“It is very likely that Russia will use gas and energy as blackmail against 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 major importers Germany and Italy, and halted deliveries to six member states, such as Finland.
Germany triggered the second phase of a three-stage contingency plan for gas supplies on Thursday, saying the country was facing a “crisis”. Weaknesses in Germany, Europe’s largest economy, are likely to have a large ripple effect and make the EU’s latest economic growth forecasts too optimistic.
“The impact will be huge for Germany but also for all other European countries,” said Belgian Prime Minister Alexander De Croo.
In May, the European Commission said EU economic output would grow 2.7% this year and 2.3% in 2023 after growing 5.4% in 2021. Other forecasts have already revised declining growth prospects. At the start of this year, the bloc was still dealing with the effects – including higher budget deficits – of the pandemic, which caused the economy to shrink by 5.9% in 2020.
The ECB has pledged to create a market safety net to protect the 19 countries that share the euro against market turmoil as it tackles record inflation of 8.1%. A sell-off in the bonds of some eurozone countries was a central part of the debt crisis a decade ago.
“The next few months will be very difficult,” said European Parliament President Roberta Metsola, who attended the first day of the summit on Thursday.
Follow AP coverage of the war at https://apnews.com/hub/russia-ukraine
Mike Corder and Samuel Petrequin in Brussels contributed to this story
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