03/12/2022

UDS-Biz

Growing Your Income

Euro zone to mull energy support plans coordination as recession looms

By Jan Strupczewski

BRUSSELS (Reuters) – Euro zone finance ministers will discuss on Monday how to better coordinate support for economies against soaring energy prices to reduce the uncertainty such schemes create for their 2023 budgets and to better prepare for a looming recession.

Germany angered its European Union peers in September by announcing a plan to support households and businesses worth up to 200 billion euros – an amount few countries can match and which critics say threatens fair competition within the EU’s single market. Other EU countries have also announced support plans, but smaller.

Such schemes, which act like a fiscal stimulus, not only increase already large public debt in the 19-country euro zone, but also make it difficult for the European Central Bank to fight inflation which hit an annual 10.7% in October.

With that in mind, euro zone ministers agreed in September and October that government help should be targeted and temporary – but many such schemes have not been.

“The measures have not been as targeted and temporary as planned, most of them have been broad,” said a senior euro zone official involved in the preparation of the ministers’ talks. “There is recognition that the broad measures are not sustainable for long.”

One of the options under discussion is for governments to provide a fixed amount of energy to a consumer at a subsidised price, with consumption above that limit to be settled at the higher market price, officials said.

“It would be not be optimal, but we are not looking for optimal, but for politically and economically sustainable,” the same senior official said.

“If there is sufficient common ground, we would be looking to the European Commission to work out the details and a set of principles that EU governments could implement in national policies.”

Such common principles would allow the EU to retain fair competition among its economies and also help the ministers plan budget spending in 2023.

Last month, all euro zone countries submitted their draft budgets for next year to the Commission for checks to ensure they comply with EU rules and a common fiscal policy stance that is to shift from “supportive” this year to “neutral” in 2023.

But they only contain spending that has already been legislated for, without taking into account needs that may arise later in 2023 when some of the existing energy support schemes may need to be extended.

An economic recession, expected at the start of next year, is likely to add to fiscal pressures on budgets, even if it eases inflationary pressures through falling demand, officials said.

(Reporting by Jan Strupczewski; Editing by Catherine Evans)