Iran, Dombrovskis warns: “We risk stagflation”

Brussels – High producer and consumer prices, with economic activity at a standstill: the spectre of stagflation is once again looming over the European Union as a consequence of the war in Iran and the Middle East. The Commissioner for Economic Affairs, Valdis Dombrovskis, makes no secret of the scenario that is beginning to be discussed in Brussels: a real, deep crisis in which everything costs a lot and there is no growth. 

“If the conflict lasts only a few weeks, then there would be no major consequences” for the global economy. Conversely, Dombrovskis warns before the start of the Eurogroup meeting, “a protracted conflict with Iran and in the Middle East could generate significant stagflationary shocks for the global and European economy, with higher energy prices, higher overall inflation, and tighter financing conditions.” 

We must be prepared for the worst, and the College of Commissioners, as the Commissioner for Economic Affairs admits, is already working on it: “We have possible common solution plans, and we will discuss them,” Dombrovskis simply states, aware of what is at stake. So much so that he anticipates that one possibility under consideration is “the release of our oil reserves to respond to these supply disruptions” and to control prices that have risen due to the supply stoppage, thereby eliminating or at least postponing the risks of stagflation looming on the horizon. 

“We are in crisis management mode,” admits the president of the Eurogroup, Kyriakos Pierrakakis, before the start of proceedings. “Energy policy must remain high on the agenda,” given that “the energy effects of the war are clearly visible.” Faced with a suddenly extremely delicate situation, “coordination” remains essential, as Pierrakakis loudly calls for. 

In France, both the Commission and the Eurogroup have found an attentive and responsive ally: “I have convened a meeting of the G7 finance ministers, and we have agreed to hold meetings whenever necessary over the coming weeks,” announced French Finance Minister Roland Lescure. “We agree to keep our attention focused on the situation.”