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25th Sep 2022

France latest EU member to step up government spending in 2023

  • French president Emmannuel Macron has previously said "the age of “carefree abundance is over" (Photo: consilium.eu)
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Governments across Europe are increasing public expenditure in their 2023 budgets to shield households and businesses from a looming recession.

France, suffering from a concurrent hydro-, nuclear and gas power crisis, has increased projected public expenditure for 2023 by another €7.5bn compared to the last draft in August.

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In a draft copy made public by French website Contexte on Thursday (22 September), €4.7bn is set aside for green investments, with €2.6bn intended for the renovation and insulation of homes and €1.3bn to speed up electrification of cars and trucks.

The country has already spent €71.3bn extra to shield households and businesses from high energy prices this year. Its new budget also includes €250m to encourage people to cycle more.

To pay for this, president Emmanuel Macron and vice president Élisabeth Borne plan to tighten unemployment benefits and raise the state retirement age.

The increased expenditure will first have to be approved by an unfriendly parliament where they are 39 seats short of a majority.

Putting further pressure on government finances is the decision by the European Central Bank to increase the cost of borrowing to bring down inflation.

Other EU governments also announced last-minute budget adjustments this week to allow for more social support, in an attempt to avoid social unrest, which has seen an uptick in Europe.

The loss of public trust was "worrying", Dutch king Willem Alexander said in a speech on Tuesday (18 September), written by the country's prime minister Mark Rutte in honour of the country's annual budget day.

Just a day before, the Dutch government decided to cap energy bills for households and small businesses — a €16bn move Dutch bank ING called a "big bazooka."

€500bn

From September 2021 to September 2022 EU governments, including the UK, have allocated €500bn in energy support, according to data published on Wednesday (21 September) by Brussels-based think tank Bruegel.

Not all of this money has been spent yet. Germany allocated €100bn to battle energy inflation but has so far only implemented plans worth €35bn, with the remainder yet to be spent.

The UK, where the new government has drafted a plan to freeze household electricity expenses at €2.723 per year, is estimated to spend €149.9bn in the next 18 months, bringing total support in the country up to €178.4bn, according to Bruegel.

Simone Tagliapietra, author of the Bruegel study, writes that is important to coordinate policies among European countries. "This level of intervention can deepen economic divergences within Europe," he tweeted.

To help public authorities deal with the excessive energy costs, the European Commission has announced a windfall tax and a "solidarity contribution" on fossil fuel companies which is supposed to shift €140bn from market winners to public coffers.

Energy ministers are expected to finalise an agreement on Friday, 30 September. Part of the discussion will be focused on how to divide these taxes proportionally among EU members.

EU energy ministers' meeting ends with 'no decision made'

EU energy ministers met for an extraordinary council meeting to discuss a unified European response to the energy crisis — but no decision was reached, with negotiations likely continuing until the end of September.

Analysis

Investors in renewables face uncertainty due to EU profits cap

While a cap on revenues from renewables is aimed at redirecting excess profits from low-cost electricity generation back to consumers, analysts and industry groups argue such measures come with risks — and at a bad time.

EU sanctions hamstrung by threat to food security

The EU has lifted some restrictions on the trade and financing of Russian coal and chemical to avoid an energy and food security crisis in poorer countries, but the upcoming ban on oil may have an even deeper impact.

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