Europe is throwing billions at the energy crisis
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Paris (AFP)- Almost every week now, European governments announce emergency measures to protect households and businesses from the energy crisis resulting from Russia’s war in Ukraine.
Hundreds of billions of euros – and counting – have been disbursed so far since Russia invaded its pro-Western neighbor in late February.
Governments have done everything from capping gas and electricity prices to bailing out struggling energy companies and directly helping households fill up their cars.
Public spending has continued even as European Union countries have already racked up mountains of new debt to save their economies from the fallout of the Covid pandemic in 2020.
But some leaders are proud to have used public money to fight this new crisis, which has sent inflation skyrocketing, the cost of living soaring and fears of recession.
After announcing 14 billion euros ($13.9 billion) in new measures last week, Italian Prime Minister Mario Draghi boasted that it put Italy “among the countries that spent the most in Europe “.
The Bruegel Institute, a Brussels-based think tank that tracks EU government energy crisis spending, ranks Italy the second biggest spender in Europe after Germany.
Rome has allocated 59.2 billion euros since September 2021 to protect households and businesses from rising energy prices, which represents 3.3% of its gross domestic product.
Germany tops the list with 100.2 billion euros, or 2.8 of its GDP, as the country has been hit hard by its heavy dependence on Russian gas supplies, which have dwindled in alleged retaliation for Western sanctions against Moscow for the war.
On Wednesday, Germany announced the nationalization of struggling gas giant Uniper.
France, which shielded consumers from gas and electricity price hikes as early as November, ranks third with 53.6 billion euros allocated so far, representing 2.2% of GDP .
EU countries have now invested 314 billion euros since September 2021, according to Bruegel.
“This figure is expected to rise as energy prices remain high,” Bruegel research fellow Simone Tagliapietra told AFP.
Energy bills for a typical European family could hit 500 euros a month early next year, up from 160 euros in 2021, according to US investment bank Goldman Sachs.
Measures to help consumers range from a special tax on excess profits in Italy to freezing energy prices in France and subsidizing public transport in Germany.
But the spending follows a pandemic response that has increased public debt, which in the first quarter accounted for 189% of Greece’s GDP, 153% in Italy, 127% in Portugal, 118% in Spain and 114% in France. .
“Initially conceived as a temporary response to what was supposed to be a temporary problem, these measures exploded and became structural,” Tagliapietra said.
“This is clearly not sustainable from a public finance perspective. It is important that governments try to focus this action on the most vulnerable households and businesses as much as possible,” he said.
The increase in spending comes as borrowing costs increase.
The European Central Bank raised its rate for the first time in more than a decade in July to combat runaway inflation, fueled by soaring energy prices.
The yield on French 10-year sovereign bonds hit an eight-year high of 2.5% on Tuesday, while Germany is now paying 1.8% interest after posting a negative rate at the start of the year .
The rate charged to Italy has quadrupled from 1% at the start of the year to 4% today, raising the specter of the debt crisis that threatened the euro zone a decade ago.
“It is essential to avoid debt crises which could have significant destabilizing effects and put the EU itself at risk,” the International Monetary Fund warned in a recent blog post calling for reforms to fiscal rules.
The EU has suspended until 2023 the rules that limit the public deficit of countries to 3% of GDP and the debt to 60%.
The European Commission plans to table proposals next month to reform the 27-nation bloc’s fiscal rules, which have been upended by the crises.
© 2022 AFP