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- [00:00]
A
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B
Bloomberg Audio Studios podcasts,
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C
Radio news and this is the backdrop of the whole conversation that's taking place right now in Washington with the IMF World bank spring meetings getting underway and they come with a fresh warning from the IMF today that the global economy is at risk of its slowest growth since the COVID pandemic. If oil prices hang near $100 a barrel, consider 2 1/2% growth weakest since 2020 5.4% inflation under an adverse scenario in which indeed petroleum spot prices hold near triple digits. As we just established, though with Nora, they are a bit lower today. Christine Lagarde, ECB President, was in our bureau here in Washington this morning speaking about this baseline where we are now with prices and how damaging this could be.
- [01:26]
B
Listen, you have to look at the price of the barrel, the price of the various categories of fuel, the price of futures, and all of that applied to gas as well to determine where we are exactly relative to these two. But we are somewhere, I think, in between the baseline and the and the
- [01:47]
C
adverse scenario, which is where we find Valdis Dumbravskis, European Commissioner for Economy and Productivity, also Commissioner for Implementation and Simplification, joining us now live from the IMF World bank meetings here in Washington. It's great to have you back with us on Bloomberg TV and radio. How concerned are you about this persistent increase in oil prices, even if there is a peace accord and the prospect of physical shortages in Europe?
- [02:19]
D
Good afternoon. Obviously we are concerned on the economic implications of this Iran war. So we have run certain simulations on potential impacts on the EU economy and we see that depending on different scenarios, how protracted the conflict is, how big the oil price shock is, the negative effect on EU economy somewhere between 0.2 and 0.6 percentage points simultaneously with increased inflation, which in some scenarios can increase by more than 1 percentage point. So essentially what we are seeing, we are facing stagflationary shock for European economy. To compare, prior to the war, our economic forecast for EU economic growth was 1 1/2% both this year and next. We are Currently not seeing physical shortages of oil and gas supplies, but something we continue to monitor, notably in a sector of jet fuels. And obviously, we are engaged in diplomatic efforts to put an end of this war to ensure freedom of navigation in Hormuz Strait, also to ease the current supply limitations we are facing.
- [03:46]
E
Well, and when we consider those supply challenges, knowing that not much can be done about that. Commissioner, absent a reopening fully of the Strait of Hormuz, how much room is there within Europe for some kind of fiscal policy response? Do you see the need for that at this time?
- [04:08]
D
Yes, obviously there is immediate response in the area of energy markets, including we are working with International Energy Agency on coordinated release on oil reserves. We are looking also at certain aspects of the design of EU energy market in terms of fiscal policy response. What we are emphasizing, that it is important that it remains temporary and targeted, also does not create incentives for increased demand for oil and gas at the time when we actually need to decrease this demand.
- [04:45]
C
Of course, you were the Prime Minister of Latvia, so your viewpoint is unique. When it comes to Russia, it's clear that Vladimir Putin is making a lot of money here, that this war with Iran is actually enriching Russia and helping to pay for its war with Ukraine. If this continues, what will it mean for the people of Ukraine?
- [05:07]
D
Well, indeed, Russia, unfortunately, is emerging as a winner from this Iran war because this additional oil and gas revenue helps to fuel Russia's war machine. So that's why our message from European Union is very clear. We need to continue to provide all necessary support to Ukraine. And currently at the EU level, we are working on a new financing package of 90 billion euros for this year and next. And we need to continue to put pressure on aggressor Russia with a G7 oil price cap, with sanctions which are being applied against Russia. So now it's not a time to ease pressure against Russia. We need to put up this pressure to make sure that Russia gets serious also about peace negotiations and stopping its aggression in Ukraine and stopping in more general its kind of aggressive, expansionist policy.
- [06:10]
E
Well, as you reference that financing package for Ukraine, obviously the path to that approval has gotten much easier given that there is going to be a power change in Hungary with the defeat of Prime Minister Viktor Orban in the elections over the weekend. Is the new prime minister, as I'm sure you're well aware, Commissioner says he wants to be more a part of Europe. What kind of rebuke did that deliver to Vladimir Putin in the Kremlin?
- [06:37]
D
Well, clearly that's welcome news. Because indeed the potential Prime Minister Maghreb has confirmed that he is willing to stick with the agreement we reach as European Union in December last year in providing this support for Ukraine, 90 billion euros. So we hope that new Hungarian government will unblock it, we hope also for unblocking the 20th sanctions package. So correspondingly, we will be able to speak as European Union in one voice and to provide a more forceful message both of support of Ukraine and also of pressure against Russia and Vladimir Putin.
- [07:23]
C
Commissioner, there has been talk, and I'm sure you've heard some of these conversations and have been part of them, about creating a standing army for the EU thanks to Russia's aggression. Now this war with Iran. Does this moment in time hasten that conversation?
- [07:44]
D
Well, I think we are still some steps and time away from European army, but it's clear that European Union must and is doing much more for security and defence. Strengthening our defence capabilities, strengthening our defence industrial base, also streamlining our defence industries, ensuring interoperability, ensuring complementarity. So all of this is underway because the threat of Russia is there, not only in a context of aggression against Ukraine, but Russia is openly talking about invading other European countries. So therefore we need to be very serious about our defense capabilities and also about strong deterrence against Russia.
- [08:36]
E
And Commissioner, I am sure all of these conversations are happening at the meetings here in D.C. this week. I also wonder to what extent you're engaged in conversations around the economic threat or benefit posed by artificial intelligence. Obviously, productivity is part of your purview and artificial intelligence is seen as something that would increase productivity, but it also could potentially pose a threat in terms of replacing existing jobs. How are you thinking about it at this time?
- [09:07]
D
Well, from the EU side, we are very much focused on being able to derive the benefits from artificial intelligence. So we have developed what we call the AI Continent Action Plan, where we are looking at both supply side of artificial intelligence on AI gigafactories and initiatives like this, and also on demand side, facilitating companies and institutions uptake of AI. At the same time, it's clear that we also need to mitigate risks. So that's why we are focusing on what we call human centric artificial intelligence. So we have strong, we see strong potential for productivity gains, for boost for economy, but we need obviously to properly use those opportunities.
- [10:05]
E
All right, Commissioner, thank you so much for joining us live from the IMF World bank meetings happening this week here in Washington. Valdostambroski, European Commissioner for Economy and Productivity.