Press remarks by Executive-Vice President Dombrovskis at the informal video conference of economy and finance ministers
European Commission Speech Brussels, 02 Mar 2022 Merci Bruno.
It is only 5 days since our last meeting in Paris. But in that time, the situation in Ukraine has escalated dramatically. This is why we met again today. To take stock and, above all, we must ensure we remain strong and united in our response.
Russia’s barbaric act of aggression against Ukraine – a sovereign and independent European country – is now increasingly targeting civilians.
I express my condolences to the Ukrainian people for their losses. I salute their courage and determination to defend their homeland and our European values.
We stand by Ukraine, providing all support we can.
Over the past days, we moved forward with the most powerful package of EU sanctions ever. They are designed to weaken Russia’s economic base, deprive it of critical technologies and markets, cripple Putin’s ability to finance his war machine. We are targeting the ruling elite.
The effects are evident.
The rouble has plummeted. Capital controls have been imposed and equity trading at the Moscow stock exchange has been suspended.
Just today, we agreed to exclude seven important Russian banks from the SWIFT system. We also banned the transactions of Russia’s central bank and froze its assets. We can and must go further if needed, in light of the situation on the ground.
The sanctions will have an immediate impact on our economy. It is difficult to quantify this impact as the situation is unfolding fast. There are many unknowns.
Growth will be affected. We will see an impact on energy prices and supply chains, including for raw materials.
Confidence will be knocked. There will also be direct fiscal costs.
But we are in a strong starting position, with strong fundamentals.
Clearly, this is a price worth paying for democracy and peace.
We estimate the direct impact on the EU-wide financial system to be contained. Direct exposure of the EU financial sector to Russia is overall limited.
But we are more exposed when it comes to energy.
We expect gas and electricity prices to remain high this year.
The overall impact on inflation and the economy is significant and is not expected to abate soon. So we will be in a high price and high inflation environment longer than we originally thought.
The Commission plans to present an Energy Communication next week to address these issues.
On the fiscal side, there will be immediate costs. Our economic and material support to Ukraine, our assistance to a large number of refugees, and our continued support to the economy to deal with high energy prices: all this will weigh on national budgets.
So the wider impact on the economy will also affect public finances.
We showed during the pandemic how strong we are when we act in a united and coordinated way. It is important now that we coordinate our policy response and stay agile.
Today we presented fiscal guidance for the period ahead. The so-called “general escape clause” of the Stability and Growth Pact remains active in 2022. This allows fiscal policy to adjust to the evolving situation and address immediate challenges posed by this crisis. As regards 2023, the GEC is due to be deactivated but we will assess this in light of the Spring Forecasts.
More broadly, we will monitor economic developments closely and adapt as needed.
One final word on support to Ukraine. We are progressing swiftly on the new emergency MFA of EUR 1.2 billion. I hope to sign the Memorandum of Understanding early next
The first disbursement of EUR 600 million, without conditions, could come still in March.
We are in close touch with the IMF and US Treasury to coordinate every next step on financial support to Ukraine and also concerning sanctions against Russia.
We are also in close contact with the EIB and EBRD who are also working on providing further support.
