Brussels takes aim at Trump and Netanyahu: “US and Israeli Middle East wars will cost the EU a third of its 2026 GDP”

Brussels – It’s all down to Donald Trump and Benjamin Netanyahu, and their wars in the Middle East. The political message underlying the Commission’s spring economic forecasts is all there, in the not-so-veiled condemnation that the Commissioner for the Economy, Valdis Dombrovskis, directs at the military manoeuvres of the United States and Israel. “The conflict in the Middle East has triggered a major energy shock, further testing Europe as it navigates an already volatile geopolitical and trade environment,” Dombrovskis said as he presented the figures, which confirm what the ECB had already anticipated, namely a loss of one-third of a percentage point in growth.

 Due to rising energy prices caused by the war in Iran, the European Commission has revised down its growth forecasts for the EU and the eurozone. For the European Union as a whole, growth is now expected to be 1.1 per cent in 2026 (compared to the 1.4 per cent forecast in November), and 1.4 per cent in 2027 (compared to the previously expected 1.5 per cent). The eurozone has also seen its forecast cut by 0.3 percentage points: growth is now expected to be 0.9 per cent by the end of 2026 (instead of 1.2 per cent) and 1.2 per cent in 2027 (instead of 1.4 per cent). 

“The EU economy will continue to grow, but at a slower pace,” summarises the European Commission, and this is due to the actions of actors traditionally considered EU partners, whose behaviour now calls everything into question. The note accompanying the economic forecasts clarifies “before the end of February 2026, the EU economy was set to keep expanding at a moderate pace alongside a further decline in inflation, but the outlook has changed substantially since the outbreak of the conflict“ in Iran. This is where the blame is pointed at the United States and Israel. Due to their actions, “inflation started picking up a few weeks after the outbreak of the conflict, driven by the sharp increase in energy commodity prices, and economic activity is losing momentum.” For Brussels, the situation “is set to improve slightly in 2027 if tensions on energy markets ease.” In other words, peace is needed in Iran.

The Commission fears the worst: calls for reforms and spending restraint

The major risk surrounding the forecast concerns the duration of the conflict in the Middle East and its implications for global energy markets: this is the real wildcard of economic forecasts drafted with so many question marks. “Given the unusually high degree of uncertainty, and the narrowing window for a rapid normalisation of supply conditions,” the baseline forecast is complemented by an alternative scenario assuming more prolonged disruptions. 

In this scenario, officials in Brussels acknowledge that energy commodity prices are assumed to rise significantly above baseline futures curves, peaking at the end of 2026 before gradually realigning with them by the end of 2027. In this scenario, inflation would not subside, and economic activity would fail to recover in 2027 as envisaged in the baseline projections. Furthermore, higher prices could lead households and businesses to cut back more sharply on consumption and investment.

Furthermore, “the energy shock is also shaking economic sentiment, with households tempted to increase their savings, thereby exposing businesses to weaker demand,” Dombrovskis warned. Faced with this situation, Member States should take appropriate precautions and implement suitable policies. The Commissioner for the Economy explains what this means: “Acting with unity and determination, Europe should accelerate reforms, remove barriers to growth, and safeguard sound public finances.” More generally, Dombrovskis continues, “The EU must learn from past crises by keeping fiscal support temporary and targeted, and further reducing its reliance on imported fossil fuels.”

Over half of EU countries exceed the 3 per cent deficit-to-GDP threshold

Dombrovskis’ calls to “be careful” with public budgets and to ensure “the sustainability of public finances” are no coincidence, because, given the current situation, there are 13 out of 27 EU Member States that will find themselves in a situation of excessive deficit in both 2026 and 2027, that is to say, exceeding the 3 per cent threshold for the deficit-to-GDP ratio. “We are not here to present the countries’ budgetary situations, but the economic forecasts,” the Commissioner for Economic Affairs cuts short, but the forecasts themselves speak for themselves: Austria, Belgium, Bulgaria, Estonia, Finland, France, Germany, Latvia, Poland, Romania, Slovakia, Slovenia, and Hungary will exceed the reference values for at least two years, which could trigger the excessive deficit procedure from which Italy is expected to emerge.