30th Sep 2023

EU: national energy price-spike measures should end this year

  • EU commission vice-president Valdis Dombrovskis (l) and commissioner Paolo Gentiloni at the presentation of the recommendations (Photo: European Commission)
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The EU Commission told national capitals on Wednesday (24 May) that they should end measures designed to support offsetting the energy price shock by the end of the year.

"Governments should bring down the fiscal measures taken to respond to the energy crises shock, provided that the lower level of prices will remain," economy commissioner Paolo Gentiloni told reporters, outlining the commission's set of annual recommendations to coordinate European economic policies.

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"If energy prices increase again and support cannot be fully discontinued, targeted policies to support vulnerable households and companies — rather than wide and less-effective support policies — will remain crucial," the commission said in its assessment.

Most of the EU's 27 governments introduced various measures to mitigate the impact of soaring energy prices last year after Russia's invasion of Ukraine upset energy prices in Europe and globally.

EU natural gas consumption dropped by 17.7 percent from August 2022 to March 2023, compared with average gas consumption for the same months between 2017 and 2022, the commission pointed out.

The share of Russian pipeline imports in total EU gas imports dropped to seven percent in January 2023 from around 50 percent historically, the EU executive added.

Energy support measures in 2023 range from 0.2 percent of GDP in Greece, to 0.6 percent in Spain, one percent in France and Italy and two percent of GDP in Germany, the commission estimated.

"We are in a better place economically, better than we hoped just six months ago, and our common decisions contributed to this better-than-expected situation," Gentiloni said.

He said that the EU still faces "tightening financial conditions, high inflation weighing on household's purchasing power, Russia's ongoing war of aggression against Ukraine, geo-economic fragmentation, high but falling public debt".

Gentiloni said the EU needs a "consistent fiscal and monetary policy mix to rein in inflation, fiscal policies should be prudent and support growth". "We cannot have one without the other, I know it is a difficult marriage," he added.

Under the planned reform of the EU policy coordination, governments and EU institutions would negotiate each country's own debt reduction path with the commission.

"We recommend that our member states move towards more prudent fiscal policies," commission vice-president Valdis Dombrovskis said.

In its recommendations to EU governments, the commission said that Germany should keep the increase in net primary spending next year to a maximum of 2.5 percent, with the second-biggest, France, at 2.3 percent.

Third-biggest Italy, which has slow growth and the second-biggest debt pile in Europe at over 140 percent of GDP, should have the least room for manoeuvre with net spending in 2024 not rising more than 1.3 percent.

In its economic assessment, the commission estimated that the EU economy will grow by 1.0 percent in 2023 and 1.7 percent in 2024. EU inflation is projected at 6.7 percent in 2023 and 3.1 percent in 2024.

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"The main risk to this forecast is based on the geopolitical tensions, and the evolution of the war," EU commissioner Paolo Gentiloni said, adding that "this gives to the economy, investors, companies a high degree of uncertainty".

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