Workers maintain the huge Euro logo in front of the headquarters of the European Central Bank (ECB) in Frankfurt, December 6, 2011.
Workers maintain the huge Euro logo in front of the headquarters of the European Central Bank (ECB) in Frankfurt, December 6, 2011. Reuters / Ralph Orlowski

European Central Bank policymakers are gathering on Thursday for what may have become a crisis meeting as Russia's invasion of Ukraine threatens to derail economic growth in the euro zone and complicate the ECB's path out of negative interest rates.

The ECB's policymaking Governing Council had been due to gather in Paris on Thursday for an "informal get-together".

This was aimed at preparing a decision on March 10 on the likely end of the ECB's bond-buying stimulus programme and pave the way for the first rate hike in more than a decade to tackle surprisingly high inflation.

But Russia's invasion of Ukraine overnight has changed the picture by raising the prospect of higher energy costs, financial turmoil and lower trade for the euro zone, which relies on Russian gas for 40% of its needs.

"In my view it is going to have a short-term inflationary effect - that is prices will increase due to higher energy costs," ECB policymaker Yannis Stournaras told Reuters.

"But in the medium to long term I think that the consequences will be deflationary through adverse trade effects and of course through the rise in energy prices."

Stournaras was the first ECB rate-setter to spell out the policy implications of the Ukraine crisis, telling Reuters in an interview published on Thursday that the central bank should continue buying bonds at least until the end of the year to cushion its impact.

The exact economic fallout was hard to quantify before the full extent of the conflict and the ensuing economic sanctions were known, potentially including the financial isolation of Russia through its exclusion from the SWIFT payment system.

But analysts concurred that the ECB was now likely to slow down the withdrawal of its support measures.

"It will make the ECB more cautious and may delay the decision on tapering bond purchases," said Frederik Ducrozet, a strategist at Pictet.

Daiwa Capital Markets' head of research Chris Scicluna agreed that the Ukraine crisis "would slow the pace of (ECB policy) normalisation".

ING economist Carsten Brzeski added the ECB may now refrain from putting a firm end date on its Asset Purchase Programme on March 10.


No decision was expected at Thursday meeting, which is scheduled to start with a lunch and end at around 10 p.m. (2100 GMT), before a gathering of European Union finance ministers the following day.

The ECB had not shared a meeting agenda with policymakers but they were expected to discuss the economic outlook, their next policy moves as well as some operational matters.

This has now changed, with the Ukraine crisis likely to dominate the discussion.

"This is now something completely different," ING's Carsten Brzeski. "It takes away the pressure for the ECB to rush into action."

An ECB spokesperson said a "comprehensive assessment" of the economic outlook would be carried out at the March 10 meeting.

ECB President Christine Lagarde warned at her Feb. 3 news conference of risks to euro zone growth and inflation from the Ukraine crisis and policymaker Francois Villeroy de Galhau said more recently the central bank should more than ever keep its options open.

With euro zone banks flush with cash and only marginally exposed to Ukraine, the ECB was not expected to have to step in to support the sector, which anyway can tap the central bank for unlimited liquidity against collateral.

But euro zone lenders may still be in for a rough ride if the Ukraine conflict hits economic activity in the euro zone.

"Direct exposures are limited but second round effects could be material," Marco Troiano, a managing director at Scope Ratings, said. "For example, the increase in energy prices can have knock on effects on growth in Western Europe and on banks' operating conditions."

Shares in euro zone banks fell heavily early on Thursday.

The ECB's top bank supervisor said earlier this month an exclusion of Russia from SWIFT would be "most impactful" on euro zone banks and urged banks to prepare, including for the risk of cyber attacks associated with the geopolitical situation.