The additional expenses of the eurozone governments due to the Russian invasion of Ukraine will amount to a cumulative 2% of annual production by the end of next year, according to the UBS Group.
This includes additional expenditure of 1.5% of GDP in 2022 and an additional 0.5% over the next 12 months.
While the initial focus of fiscal expansion will be on mitigating higher energy bills, further costs will include managing refugee flows, and increasing defense and energy security spending, UBS said.
The Swiss bank’s calculations provide an initial picture of the impact on public finances that had already been burdened by measures to reduce the pandemic’s economic impact.
Brussels has pointed out that the rules limiting deficits in the region, which were suspended due to the pandemic, could remain so next year.
“We doubt that any decision to this end would provoke reactions from the most conservative countries,” UBS said.
Even if the suspension is lifted, “we believe that the Commission could provide sufficient room for countries that exceed their budgets, also taking into account the additional costs of refugees, defense and energy security.”
Source: Capital

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