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The economic policy consequences of the war (Ferry)

The economic policy consequences of the war by Jean Pisani Ferry published by Bruegel (3/2022).

“The Ukraine war will have significant economic policy consequences for the European Union and its members, arising from the adverse supply shock triggered by the rise in oil and gas prices, energy independence measures, the inflow of refugees and boosted defence spending. Their direct budgetary implications could be 1.1/4% of GDP in 2022.

The European Union has responded to the war at its Eastern border with exceptional unity, resolve and speed. But the invasion of Ukraine is a watershed. Whatever the duration of the war, its legacy will be long-lasting. It will shape Europe’s policy choices for the years and decades to come.

This blog post aims at providing a first assessment of the economic policy consequences of the invasion and the decisions taken since 24 February, when Russian troops entered Ukraine. The main immediate risks to the European economy arise from the supply shock triggered by the increase in oil and gas prices, from Europe’s dependence on Russian energy and from the impact of geopolitical threats on household confidence and investors’ sentiment. Europe also has the duty to welcome millions of war refugees and provide them with emergency assistance. In 2022 already, the direct budgetary impact of the corresponding decisions could amount to 1.1/4% of GDP, if not more. Longer-term, the EU is confronted with the need to boost defence spending in response to aggravated security threats and to rethink its energy system…”

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