The European Commission announced this Friday, the 27th, that it will present proposals to combat high energy prices, which include taxing light less than fossil fuels, and warned of the “limited room for maneuver” in national support.
“As for the political response, at last week’s European Council meeting, the European Commission was asked to present a set of temporary measures aimed at tackling high energy prices. The Commission will present proposals to reduce taxes on electricity, ensuring that it is taxed less than fossil fuels”, announced European Commissioner for Economy, Valdis Dombrovskis, in Brussels.
Speaking at a press conference at the end of a virtual Eurogroup meeting, the official pointed out that these measures also aim to “improve the productivity of the network infrastructure and modernize the emissions trading system, including updating the benchmarks for free allocations and increasing the capacity of the market stability reserve to reduce price volatility”.
“The Commission also stands ready to work closely with Member States in designing policy measures at the national level to mitigate the impact of high energy prices,” he said.
Still, Valdis Dombrovskis warned that “any effective national policy response to protect the economy and people must align with certain key principles: measures must be temporary and targeted, without increasing aggregate demand for oil and gas, and must be consistent with the need to continue decarbonizing our energy system.”
“It is clear that political responses can have serious budgetary implications and our room for maneuver is more limited than before, due to previous shocks and the urgent need for additional defense spending”, said the official.
According to Valdis Dombrovskis, the European Union’s new budgetary rules include “several built-in features, designed to cushion the economy against adverse developments” like the current one.
“It focuses on a net expenditure benchmark, so that deficits arising from any economic slowdown do not need to be compensated,” he highlighted.
Furthermore, “increases in interest expense are not accounted for in the benchmark and the cyclical component of unemployment benefit spending is excluded from the benchmark,” he specified.
The official concluded that Brussels’ priority is to “implement a coherent set of policy measures that address spikes in the prices of imported fossil fuels and that are consistent with the objective of reducing dependence on these fuels” stipulated by the European Union.
The EU’s new fiscal rules maintain traditional deficit and debt limits (of respectively 3% of GDP and 60% of GDP) but introduce greater flexibility through a net expenditure benchmark.
Eurozone finance ministers met today, via videoconference, to discuss the impact of the conflict in the Middle East on energy prices and the macroeconomic situation in single currency countries.
The meeting should have taken place in Cyprus, as part of the Cypriot presidency of the Council of the EU, but due to the conflict in the Middle East it was switched to videoconferencing.
The United States and Israel launched a military attack against Iran on February 28 and, in response, Tehran closed the Strait of Hormuz, through which around 20% of the world’s oil passes.
As a consequence, oil tanker traffic in the strait fell sharply and supply-related instability increased, putting pressure on prices.
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