Paschal Donohoe ‘absolutely confident’ on the strength of euro zone finances

Finance Minister Paschal Donohoe says a euro-zone recession is unlikely despite a recent bond market crisis and rising energy prices amid the Russian war in Ukraine.

We still expect to be able to see the euro area economy grow this year and next,” said Mr Donohoe, who also chairs the 19-member Eurogroup of finance ministers.

Speaking after a Eurogroup meeting on Thursday, he said there was a consensus among ministers that “even in changing conditions we are absolutely confident in the resilience and strength of the euro area”.

The European Commission’s chief economic officer, Paolo Gentiloni, pointed to the EU growth figures for the first quarter, which he said were “more positive than expected”.

But the data was inflated by a 10.8 percent increase in Ireland’s gross domestic product, causing EU activity to rise 0.7 percent and euro-zone GDP to expand 0.6 percent – double original estimates. Without Ireland, eurozone GDP would have been 0.3 percent.

The EU recently cut its GDP forecast for 2022 by almost half due to the war in Ukraine.

“Obviously we don’t have the level of growth that we projected for 2022 – it will be much, much lower – but that doesn’t mean we’re in for a recession,” Mr Gentiloni told reporters in Luxembourg.

“Of course the environment is challenging, but I don’t think it helps to have catastrophe prophecies.”

His comments come as Russia’s state supplier Gazprom halted gas flow to Europe via the Nord Stream 1 pipeline for the second straight day over “maintenance issues”.

Dutch wholesale gas prices rose by 30 percent.

Meanwhile, investors dumped EU and US government bonds after a surprise Swiss rate hike and an expected 0.25% rise in UK interest rates.

The move comes the day after the US Federal Reserve hiked interest rates by 0.75 percent to curb inflation. At an emergency meeting on Wednesday, the European Central Bank pledged to accelerate a new “anti-fragmentation tool” to curb rising yields on Italian, Greek and other peripheral euro-zone bonds.

ECB President Christine Lagarde told a meeting of eurozone finance ministers on Thursday that the new tool will come into play if borrowing costs for weaker countries rise too much or too quickly.

But German and Austrian finance ministers urged governments to do more to control spending and borrowing and not just rely on the ECB.

“Get your budgets in order, that’s the message,” said Austrian Finance Minister Magnus Brunner. “The ECB needs to have more options, and the ECB can only have options if all budgets in all member states are in order.”

German Finance Minister Christian Lindner said there was “nobody to be nervous” about rising bond yields and said sound public finances are the best way to restore market confidence.

“The ECB has a responsibility to fight inflation, but we must live up to our responsibilities as finance ministers,” he said.

The Governor of the Central Bank of Ireland, Gabriel Makhlouf, said this week that an Irish recession was “unlikely” given the buoyant job market and high tax revenues.