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Targeted energy support in the EU is easier said than done



© Reuters.

By Jan Strupczewski

WASHINGTON (Reuters) – European Union governments have pledged “targeted and temporary” support for high energy prices for households and businesses, so as not to undermine EU efforts. central bank to fight inflation, but officials warn it will be politically difficult to do.

Speaking on the sidelines of the IMF and World Bank meetings in Washington, senior euro zone officials said there was political pressure to shield voters and their jobs from rising energy prices. skyrocketed faster than arid macroeconomic calculations.

“If two-thirds of inflation comes from an external energy supply shock, and not from excessive demand, then tight fiscal policy has a solution,” said a senior euro zone official. Can you decide?”

“For politicians, this is a very difficult situation, nobody really knows how to reconcile the monetary and fiscal policy aspects and in the end, everyone is doing what they have to do to keep their voters are shielded,” the official said.

But protecting households and businesses with public money works effectively as a stimulus program, countering the European Central Bank’s attempt to contain record inflation and weaken credit. Price titration means a decrease in demand.

To avoid fueling inflation, eurozone finance ministers pledged to keep that help temporary and targeted, but EU Economic Commissioner Paolo Gentiloni, a former Italian prime minister, said in September it would difficult to maintain this goal.

“I know it’s difficult because when you introduce a measure, the tendency to ignore it is inevitable and it’s very difficult to limit your support to certain groups,” he said.

The terms “target and interim” are interpreted differently among eurozone finance ministers, causing a lot of tension in the discussions, officials said.

“Targeting can mean targeting the poorest people in society, but it can also mean targeting the root of the problem, which means high energy prices,” said a regional official. second euro zone said, noting that in a crisis situation, it is very difficult for politicians. helping some people but not helping others.

“It’s hard in the interim – if you raise wages or minimum benefits to help the poorest, it will stay the same,” he said.

HOUSEHOLD VS COMPANY

The head of the IMF’s Europe Division Alfred Kammer said a good example of a targeted and temporary aid to low- and middle-income households through a one-time discount on bills energy.

However, officials also noted that since energy prices are not expected to fall back to pre-war levels anytime soon, it will be difficult to decide when to withdraw the discounts. there.

The different levels of support that eurozone countries can afford add to the tension, especially after Germany announced plans to support households and companies up to 200 billion euros ( $194 billion) – a number that very few other European governments can match.

While Berlin’s plans have been welcomed by voters and markets, a large package announced in the UK that includes frozen energy prices has caused a backlash in the market, suggesting that not all All countries have equal opportunities in the eyes of investors. However, many officials argue that governments do not have many options.

“In a cost-of-living crisis like this, you have to protect the social structure,” said a third senior euro zone official.

While helping households is generally accepted by eurozone governments, the massive support given to companies would distort competition in the single market, officials said. The EU, gives companies from richer countries an unfair competitive advantage, officials said.

“The real issue is helping companies. Now, people [country] said the first official.

Individual governments can support households, officials said, but any help available to companies needs to be coordinated at the EU level to maintain cross-border fair competition. The world of 27 countries constitutes the single market of the EU.

(1 dollar = 1.0289 euros)

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