Iran – Dombrovskis rebuffs Italy: “The Stability Pact will not be suspended”

Brussels – The Stability Pact will not be suspended. The Commissioner for Economic Affairs, Valdis Dombrovskis, has dashed the hopes of the Italian government, which is calling for a suspension of the common budgetary rules amid the crisis caused by the war in Iran. “To suspend the pact, there must be a serious economic crisis in the eurozone or the EU as a whole, and we are not in that situation,” he stated during the hearing in the Committee on Economic Affairs of the European Parliament. Beyond the conditions, he clarifies, “we believe that the current rules provide the necessary balance to keep accounts under control and stimulate investment,” and for this reason, “I do not believe that what is holding us back is the regulatory framework.” 

According to Dombrovskis and the Commission of which he is a member, the real obstacle is a structural situation that is a complete mess, requiring renewed vigor in reforms. “The number one priority is the sustainable transition, with the strengthening of grids,” he explains. In this endeavor, “aggregate demand for oil and gas must not be increased,” but political action on the green agenda must be stepped up to secure the EU’s future once and for all. “The long-term outlook remains shrouded in uncertainty,” Dombrovskis adds, reiterating that “risks of stagflation” persist across the EU – a combination of low growth and high inflation that the reforms called for could remedy. 

The European Commission will present its spring economic forecast “in mid-May.” In the meantime, Dombrovskis has outlined possible scenarios: a short-lived crisis could reduce growth by between 0.2 and 0.4 percentage points in 2026, which could be accompanied by a rise in inflation of up to one percentage point. If, on the other hand, the crisis were to drag on, by 2026 the eurozone’s GDP risks falling by between 0.4 and 0.6 points, accompanied by a rise in inflation of up to 1.5 points relative to current levels. This is why, in these uncertain and challenging scenarios, national governments will have to proceed with great caution: “Unfortunately, during the 2022 crisis, support measures were less temporary and less targeted” than recommended, he laments. Another message for the Meloni government, which is extending the fuel subsidy once again.