(April 28): European Union states have committed over €10 billion to shield consumers and businesses as the Iran war drives up energy prices, according to the Bruegel think tank.
The spending hasn’t been deployed efficiently with nearly four-fifths of measures — such as blanket tax cuts — poorly targeted, according to a study by the Brussels-based think tank. Some of the support being offered doesn’t fit with European Commission advice that aid should be temporary and not boost demand. Spain accounts for almost half of the total, with Germany the second-highest spender.
The energy shock is worsening the economic outlook for the EU, with the strain on government budgets likely to grow further if the conflict continues. That’s hitting both growth and inflation in Germany — Europe’s biggest economy — while Italian Prime Minister Giorgia Meloni warned last week that not all EU countries have the fiscal headroom to cushion the blow of higher prices.
The Middle East conflict comes as the 27-nation bloc is still dealing with the fallout of Russia’s invasion of Ukraine in 2022, which sent gas prices surging to record highs. During that energy crisis, EU governments earmarked and allocated over half a trillion euros of support for consumers.
“The bad news is that EU governments seem not to have learned much from the 2022 energy crisis,” Simone Tagliapietra, an analyst at Bruegel, told Bloomberg. “Against all recommendations by European and international institutions, they are indeed prioritising quick and untargeted measures. This is socially unequal and risks fuelling the problem further by pushing demand at times of scarcity.”
See also: Lagarde sees euro-stablecoin risks for banking, monetary policy
EU leaders appealed last week for new measures to help cushion the blow from rising energy prices, saying a plan that the commission put on the table — involving greater coordination, measures on jet fuel and energy tax cuts — was insufficient.
Spain’s Prime Minister Pedro Sanchez called for more resources to electrify the economy, more flexible fiscal rules and a windfall tax on energy companies. His government has targeted VAT cuts on fuel, electricity and gas, as well as providing direct aid for the farming, transport and industrial sectors.
The commission has said that since the start of the Iran war, the EU has paid more than €20 billion extra for the fossil fuels it uses.
See also: Euro-zone wage growth to quicken in second half of this year
Oil prices climbed again Tuesday, with Brent crude rising 2.5% to over YS$110 a barrel.
Uploaded by Arion Yeow
