How is the EU addressing rising energy prices and record inflation in the Eurozone? We spoke to the European Commissioner for Economy, Paolo Gentiloni, to find out.
Inflation has reached record highs in countries using the euro, as Europe tries to tackle its cost of living crisis.
Inflation hit 8.6% in June in the 19 countries that use the currency, breaking the previous record of 8.1% in May.
An increase in energy costs, fuelled by the war on Ukraine, is one of the reasons for the rate, which is the highest since recordkeeping of the euro began in 1997.
But how is the EU looking to address these challenges? Euronews spoke to the European Commissioner for Economy, Paolo Gentiloni, to try to answer that question.
Interview in full:
Maria Psara, Euronews: The European Commission has revised its economic estimates. It seems that for Europe, the worst is yet to come.
Paolo Gentiloni, European Commissioner for Economy: Well, indeed, we are already in, so to say, troubled waters.
Of course, 24 February was a game changer, not only for geopolitics, for peace, for the victims in Ukraine, but it was a game changer also for our economy.
Now I think we are still experiencing a very moderate level of growth.
So, I will not participate to this sort of prophecy of catastrophe. We estimate that we will have growth at 2.7% this year, which will decline to 1.5% next year.
Maria Psara, Euronews: What are the basic scenarios you are working on?
Paolo Gentiloni, European Commissioner for Economy: We are working on a scenario where inflation is probably peaking in these weeks.
We estimate that inflation will reach a peak in the third quarter of this year.
And then slowly going down in the last quarter of this year. The annual figure is 7.6% for this year and 4% for next year.
Of course, this is the baseline scenario. And the baseline scenario assumes that the energy supply will remain more or less as it is.
Of course, if we have a total cut of gas supply from Russia, we will be in a more adverse reality.
Maria Psara, Euronews: What are you doing to mitigate these scenarios, and especially the worst ones?
Paolo Gentiloni, European Commissioner for Economy: As always, you have to prepare for the worst. What is now very important, I think, are three things.
First, prepare the winter with storage.
We have a good level of storage, higher than 60%, and higher than it was in 2021.
Second, diversify, meaning that the [EU's] reduction of Russian oil and gas needs to be substituted by other sources.
And the third point, we have to cushion the impact of these energy prices and high inflation, especially for more vulnerable households.
I would add the fourth point, but I know how difficult it is, which is the common effort in procurement of alternative supply.
I am sure that acting as one, the European Union would be stronger [while negotiating] in the gas and energy markets.
But I also am well aware of the fact that different countries, different companies have long-term contracts. It is not easy.
Maria Psara, Euronews: The Commission will soon present its contingency plans for the energy crisis, but the proposals for electricity bills will be in autumn. Won't it be too late?
Paolo Gentiloni, European Commissioner for Economy: We will continue to face high prices.
And what we ask member states is to have this reaction as far as possible, temporary and targeted, meaning that you have to target it to households with more difficulties in paying their gasoline, heating or electricity bills. And this is the lower income families.
At the same time, we ask for temporary measures. That is because if we introduce permanent measures, to support fuel and traditional energy sources, not only we introduce a burden for public finance, but we risk undermining our own climate transition.
Maria Psara, Euronews: Europe is paying a heavy price because of the sanctions against Russia. Commissioner, were the sanctions well evaluated before being implemented?
Paolo Gentiloni, European Commissioner for Economy: I think that Europe is not paying high price for the sanctions.
Europe is paying high price for the Russian invasion. How do you respond to the Russian invasion?
Well, you can respond militarily. It would have been a mad decision, creating a risk of war escalation.
Or you can respond economically. And the economic response was impressively united. And, of course, this is creating huge difficulties for the Russian economy. And I think that overall, it is helping Ukraine to resist.
And the Ukrainian resistance is in our common interests.
Maria Psara, Euronews: A few days ago, the euro fell to parity with the dollar after 20 years. Are you concerned, and what should we do to strengthen the euro?
Paolo Gentiloni, European Commissioner for Economy: I don't see this euro versus dollar situation as a demonstration of weakness of the euro. It is, in fact, a demonstration of strengthening of the dollar.
If we look [to the difference] between the euro and the British pound, or the euro and the Japanese yen, you see that the euro is stronger against these currencies.
Why is the dollar strengthening? It is an inevitable trend in cases of a downturn of the economy.
At the same time, I think this could be a big problem, especially for emerging and low-income countries, because if they adapt, their access to markets becomes more and more difficult.
I see a [problem], not so much for the European Union, but for emerging markets and low-income countries.