US interest rate hikes are pushing global prices higher at a time of food crisis and war, presenting the world with “a perfect storm,” the EU’s top diplomat warned on Monday.
“Everybody’s running to increase interest rates — these will bring us to a world recession,” Josep Borrell predicted to EU ambassadors in an annual gathering.
A surging US dollar is making basic goods in other countries unaffordable unless central banks follow the US Federal Reserve’s lead, he explained.
“There is no other way otherwise the capital will flow (elsewhere),” he said.
The eurozone is already struggling with the conundrum of having to raise interest rates to tamp down soaring inflation while keeping a wary eye on how hard that will hit flagging growth amid an energy crunch.
Although global finance isn’t in the remit of Borrell, he referenced the interest rate problem in the same breath as he spoke of the widespread food crisis that has particularly left Africa and parts of the Middle East vulnerable.
“I am afraid that we are only at the beginning, that the food crisis will make things worse in many parts of the world,” he said.
The world itself had become more “competitive,” he stressed, highlighting the hardening confrontation between the United States and China.
“Everything is being weaponised. Everything is an arm: energy, investments, information, migration flows, data. There is a global fight about access to some strategic domains, cyber, maritime, outer space.”
The United States is a valuable ally, he said, but raised the question of “What will happen two years from now?… If instead of (US President Joe) Biden, it would be (ex-president Donald) Trump or someone like him in the White House?”
The world, he said, was being buffeted by tensions from an “authoritarian trend” that included China and Russia, and democracies.
In between were a bunch of “swing” states of different hues that were in-between and didn’t want to pick sides, yet didn’t feel that they were getting benefits from globalisation, Borrell said.
“Radical nationalism and imperialism” were on the march, with Russia one of the main proponents, he added.
“We underestimate the role of emotions and the persisting appeal of identity politics” and think that reason should prevail, he admitted.
But he also noted that the EU had acted with alacrity and determination against Russia for the war in Ukraine, and more of that spirit was needed from his diplomatic corps.
“React. Take more initiative. Be ready to be bold,” he urged the ambassadors, arguing for more “taboo-breaking decisions” from the EU in the mould of its decisions on Ukraine.