The IMF urged European countries on Friday to adopt limited measures to cushion the fallout from the Middle East war – warning that they should do little to protect consumers from rising costs.
The US and Israel launched attacks on Iran on February 28, plunging the region into war and prompting Tehran to retaliate by virtually closing the Strait of Hormuz, a key waterway for energy shipments.
This sent energy prices skyrocketing, with Europe particularly exposed due to its dependence on oil and gas imports.
The situation in Iran comes just four years after Russia’s invasion of Ukraine triggered an energy shock in which gas prices – then largely dependent on imports from Russia – soared.
“We are seeing many European countries putting together fiscal support packages for the population mainly, but also for firms,” said Alfred Kammer, who heads the European Department of the International Monetary Fund.
“Our recommendation here is not to suppress the price signal, because in the end, we have to balance demand and supply,” he added at a news conference.
Kammer added that the fund also recommends that countries target their fiscal support to the vulnerable, emphasizing the need to conserve resources.
“The last energy support packages we’ve had during the period of the Russian gas shutdown cost an average of 2.5 percent of GDP, and that’s a big number,” he said.
“If European countries had only focused on 40 percent of the population, the cost would be 0.9 percent of GDP,” he added.
This week, the IMF revised its 2026 growth forecast for the eurozone up 0.2 percentage points from January, to 1.1 percent.
Kammer said the IMF recommends that the European Central Bank maintain a neutral monetary policy stance for now.
The IMF and World Bank are holding their spring meetings in Washington this week, bringing finance ministers, central bankers and other leaders to the US capital.
(aw)
