Another Eurogroup meeting concluded without the eurozone finance ministers being able to reach a definitive assessment of the consequences of the crisis in the Middle East, as events were unfolding rapidly while they were in session.
Officially, they discussed the war’s impact on the European economy, energy prices, inflation, growth, and potential support measures. Unofficially, however, the picture was much more difficult. “We’re at an impasse. We cannot assess something that changes by the hour,” a Eurogroup official told Euro2day.gr
Eurogroup President Kyriakos Pierrakakis attempted to set the tone of the discussion with cautious but entirely indicative statements. As he said, expectations for a rapid normalization of the crisis in the Middle East“have not been confirmed.” This, he added, is a difficult reality that Europe must address “with realism and responsibility.”
This assessment also reflects the fundamental political problem now facing finance ministers: this is not merely another external shock that can be assessed using technical models. It is a crisis in full swing, with an unknown duration, unknown depth, and unpredictable geopolitical ramifications.
Mr. Pierrakakis acknowledged that uncertainty remains and that developments are already affecting the European economy through energy prices, inflation, and growth. Citizens, he said, are already feeling the pressure in their daily lives, especially the most vulnerable. The same applies to businesses, which are called upon to operate in a particularly demanding environment.
Of particular significance was his reference to the possibility of a prolonged disruption in the Strait of Hormuz. The Eurogroup president said that it is the responsibility of governments to be prepared even for the most difficult scenarios, such as a prolonged disruption or disturbance to shipping through the Strait, which could further intensify pressures and slow economic activity
In Brussels, this report was interpreted as a clear indication that ministers are no longer discussing only a scenario of a temporary rise in energy prices, but also a far more dangerous scenario of broader destabilization.
If the crisis proves to be short-lived, the eurozone can absorb it with limited interventions. But if it drags on, Europe will face the worst possible mix: higher inflation, weaker growth, and tighter fiscal margins.
The Eurogroup President emphasized that European governments are addressing the issue in close coordination, not only among eurozone countries but also with counterparts outside the eurozone. Coordinated European action on such critical issues, he said, is an essential prerequisite.
Despite the warnings, Mr. Pierrakakis sought to maintain a tone of confidence regarding the eurozone’s resilience. Europe, he said, has a strong starting point.
The eurozone has proven its resilience; inflation was close to target before the new shock, and the labor market remains strong, with historically low unemployment. “This is our foundation,” he noted, adding that on this foundation, Europe must move forward with planning, consistency, and responsibility.
The difficult part, however, is the support measures. The Eurogroup president reiterated the Commission’s line that interventions must be targeted, temporary, compatible with fiscal rules, and consistent with the goals of the green transition. He even admitted that, in an environment of successive crises, maintaining this balance “is not easy,” but it is “absolutely necessary.”
The meeting was also attended by the Deputy Director of the IMF’s European Department, who presented the Fund’s assessment of the economic impact of the crisis to the ministers.
According to Mr. Pierrakakis, the IMF acknowledges Europe’s positive starting point but warns that the consequences of the crisis are not distributed equally. Net energy importers and economies with limited fiscal space face greater pressures.
Even more revealing were the figures presented by the IMF regarding the measures taken during the previous energy crisis. As the Eurogroup president noted, approximately 70% of the total cost of the measures taken in 2022 was either untargeted or distorted prices—or both.
In the event of new untargeted subsidies, the IMF estimates that 33% of electricity subsidies could end up going to the wealthiest 20% of the population, compared to just 11% for the poorest 20%. For transport fuels, the disparity is even greater: 34% to the richest and just 9% to the poorest.
In other words, the Eurogroup knows it will face political pressure to support households and businesses, but at the same time fears that a new round of across-the-board subsidies will strain budgets, perpetuate market distortions, and undermine the credibility of the new fiscal rules.
Mr. Pierrakakis also highlighted the energy dimension, noting that gains in energy efficiency and a cleaner energy mix have made Europe more resilient. According to the IMF, European households have seen a 12% reduction in costs thanks to greater energy efficiency and the shift toward renewable sources over the past five years. Nevertheless, recent developments indicate that Europe’s energy independence must be accelerated.
The conclusion of the meeting was not reassuring. The Eurogroup emerged with a twofold assessment: on the one hand, that the eurozone is more resilient than in previous crises; on the other hand, that no one can yet reliably assess the consequences of a war that continues to evolve as European ministers attempt to calculate its costs.
As an official told Euro2day, “the problem isn’t that there are no scenarios. The problem is that no scenario can keep up with developments.”