EU Policy. EU urges France, Germany to slash energy crisis spending

A European Commission report spells the return of belt-tightening after years of crisis-driven largesse


Major eurozone countries including France and Germany need to reverse crisis-driven energy tax cuts soon, the European Commission said today, as the bloc seeks to return to its traditional role of policing government spending.

Eurozone members need to "wind down energy support measures" introduced after the Ukraine war sent household bills spiralling, the Commission said today, signalling the end to a period of fiscal largesse first prompted by the pandemic.

Following gloomy economic forecasts issued last week, the Commission expects nine of the twenty eurozone members to breach a key deficit threshold —- and today it warned the bloc's major players aren't tightening their belts fast enough.

Last year Germany cut value-added tax on domestic gas supplies from 19% to 7%, while France lowered taxes on electricity and subsidised energy suppliers, in a bid to insulate people and businesses from the rising cost of living.

While the EU has previously said those measures should be temporary, both of those countries — alongside Croatia, Luxembourg, Malta and Portugal — are still "projected to have substantial measures still in force in 2024," the Commission said.

The report today, firing the starting gun in a year-long process of economic scrutiny which can potentially lead to fines for nations with reckless spending, has also turned the traditional EU fiscal debate on its head.

While hawkish northerners like to think of themselves as enforcing fiscal discipline against supposedly more relaxed Mediterranean states, the Commission today said that Greece, Cyprus and Spain are meeting EU budgetary strictures, while Austria, Germany, the Netherlands, and Finland potentially won't.

EU states are currently racing to rewrite their fiscal rulebook, after they agreed to suspend strict constraints to stimulate growth post-pandemic — a 2021 carveout that's due to expire at the end of this year.

In September, French President Emmanuel Macron set out how he wants to achieve green energy goals, including via tax credits for electric vehicles — but the EU's Council in June warned that existing French subsidies aren't targeted at the most vulnerable, and may dull the price signals that would encourage greater energy efficiency.

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