EU flags waving in front of European Parliament building. Brussels, Belgium

Finance ministers of the 19 countries that use the euro gathered Friday in Paris to weigh the economic fallout of Russia’s invasion of Ukraine and the resulting European Union sanctions. The EU, and allies like the U.S., are trying to starve Russia of international capital and key industrial technologies.

“These sanctions will have an impact on our economies,” French Finance Minister Bruno Le Maire told reporters after the talks. “But what is at stake are our values of liberty.”

The EU agreed to a package of penalties that includes freezing the assets of Russian President Vladimir Putin and Foreign Minister Sergey Lavrov following an invasion that has rattled the post–Cold War security order.

The measures also target Russia’s banking sector, oil refineries and defence industry. Like the U.S., the measures stop short of excluding Russia from the SWIFT international payments system.

Some EU leaders acknowledged the pain of sanctions also would be felt in Europe.

“All these measures are going to be expensive, also for us,” Luxembourg Prime Minister Xavier Bettel said Thursday. “But peace also has a price.”

The EU faces considerable costs because of close economic ties with Russia, particularly the bloc’s imports of Russian energy.

BusinessEurope, which represents a range of EU-based companies, appealed to European authorities for “supporting measures” to ease the impact of the new sanctions against Russia.

“European businesses will be bearing the burden, including companies trading and operating in Russia,” the Brussels-based group said.

Luisa Santos, BusinessEurope’s deputy director general, cited as an example EU-based automotive companies with subsidiaries in Russia. She said they stand to be affected by curbs on the bloc’s shipments of semiconductors to Russia.

“Some operations in Russia of our companies could be impacted because of the planned export controls,” Santos said. “These controls look set to be extensive.”

The EU is going beyond more targeted economic penalties introduced in 2014 after the Kremlin annexed the Ukrainian region of Crimea and began supporting separatist rebels in eastern Ukraine. Russia retaliated at the time by banning imports of farm goods from the EU.

While those curbs by each side remain in place, trade in goods between the EU and Russia is still sizable. It totaled more than 174 billion euros (US$195 billion) in 2020, making Russia the EU’s fifth-biggest trade partner and the bloc the largest Russian commercial ally, according to the European Commission.

Of the roughly 95 billion euros in EU imports from Russia in 2020, when the economy slumped during the Covid-19 pandemic, around 67 billion euros — or 71% — were petroleum products.

Even before the invasion, Europe was facing economic difficulty.

Euro-area inflation hit a record 5.1% in January, fuelled by surging energy prices. The European economy also has entered a soft patch, reflecting other factors including the omicron variant of Covid-19 and a shortage of semiconductors that are used in everything from cars to game consoles.

This combination poses a tricky test for policy-makers as they seek to protect consumers from rising prices and keep stimulating business activity.

European Central Bank President Christine Lagarde said that while it’s “premature to assess exactly the economic impact of the current conflict” in Ukraine, the euro region would be affected primarily by even higher energy prices and by a “drag” on consumption and investment.

“The ECB stands ready to take whatever action is necessary within its responsibilities to ensure price stability and financial stability in the euro area,” Lagarde said.

Two weeks ago, the European Commission, the EU’s executive arm, predicted that economic growth in the euro zone will slow from 5.3% last year to 4% this year and 2.7% in 2023.

Valdis Dombrovskis, the European Commission executive vice president in charge of the euro, signaled Friday that this outlook is already out of date.

“Clearly this conflict will weigh on this,” Dombrovskis said. “The impacts are going to be unevenly distributed across countries and sectors.”

While European Commission President Ursula von der Leyen said the new EU sanctions would “gradually erode Russia’s industrial base,” including by hindering the country’s ability to refine oil, she highlighted the bloc’s reliance on Russian fossil fuels and urged speedier development across Europe of renewable energy.

“This will be our new strategy we have to intensify,” she said in Brussels early Friday.