The Taoiseach Micheál Martin and Minister for Finance Paschal Donohoe warned on Friday of the risks of a European recession as EU leaders meet to discuss how to control inflation without strangling growth in their economies.
Mr Donohoe spoke about the risk of inflation becoming “embedded” in European economies ahead of a meeting of EU leaders this morning which will discuss the cost-of-living crisis.
The Minister for Finance, who is attending the meeting as president of the Eurogroup, and the president of the European Central Bank Christine Lagarde will brief EU leaders on economic issues on the second day of the summit in Brussels.
Many national leaders are concerned about interest rate rises at the ECB at a time when consumers are facing steep increases in the cost of fuel, food and other necessities.
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“We do need to acknowledge the risk we could face if inflation becomes embedded into our economies,” Mr Donohoe told journalists on his way in to the meeting.
“So it’s in all of our interests that measures are put in place to do two things - firstly to avoid the risk that these pressures become part of our medium term outlook, but secondly ... that governments put in place appropriate measures to support those who are hit the most by the rising cost-of-living,” he said. “This is a demanding balance to get right.”
Asked if European consumers simply had to take the pain now to tame inflation, he said: “If inflation becomes a real durable part of our economies in the years to come the challenges that we face with standards of living will only grow in the years ahead. It’s a very difficult challenge for central banks and governments. Because history shows us if inflation becomes a multi-year phenomenon at very high rates that the challenges we face in the cost-of-living only grow.”
Mr Donohoe acknowledged the risk of a recession but he said “what were seeing happening at the moment is lower growth, rather than a recession, materialise.”
Mr Martin also acknowledged the risk of recession - “Yeah, there’s a risk of recession, globally and across Europe. But you can’t take that as a given,” he said - while stressing the strength of the Irish economy.
“If you watch for the last number of weeks companies are investing in Ireland, companies are continuing to invest in Ireland. The census figures revealing that people are coming to work in Ireland in ever greater numbers over the last number of years even through the pandemic which all reflects a growing economy,” Mr Martin said.
“But we have to try to get the balance right. We don’t want to end up in a stagflation situation. That’s something we want to try to avoid at all costs.”
