“No more help with bills”: warning from Brussels to governments

The European Commission said this more bluntly at its last meeting with the bloc’s finance ministers: aid to labor bills “must be temporary and gradually disappear as energy prices fall”. The European Central Bank was tougher: support measures should be withdrawn “immediately and in an agreed manner”. So the message from Brussels to Frankfurt is the same: the energy crisis is easing and it’s time for businesses and households alike to come to terms with their electricity and gas consumption without government support.

The ECB’s reasons are mostly inflation-related: continuing to help bonds risks “increasing medium-term inflationary pressures, necessitating a more determined monetary policy response,” reads its latest monthly bulletin. Frankfurt’s thinking seems to target countries like Italy in particular: “Fiscal policies should be aimed at making the eurozone economy more efficient and gradually reducing the high public debt. The policies aim to increase the supply capacity of the eurozone, in particular. The energy sector is also price-based in the medium term. It can help reduce the pressure.” In this context, “The Governing Council welcomes the publication of the European Commission’s legislative proposals for the reform of the EU economic governance framework, which should be concluded soon”, the ECB adds, referring to the government’s Stability Pact reform. Giorgia Meloni objected on several points.

It is no coincidence that two issues (energy subsidies and the Pact) were at the center of the last meeting of finance ministers in Brussels: In a document presented by the Commission on the occasion of the meeting, the recommendation is clear: “Aid should be temporary to companies and gradually disappear as energy prices fall” He also underlines that it peaked in the second half of last year and started to decline for a while. Commissioner for the Economy Paolo Gentiloni underlined this by reminding that “States should stop credit subsidies to businesses and adjust their bankruptcy frameworks”.

The Commission’s latest economic forecasts already accept the reduction in aid as a reality: for 2023 and 2024, Brussels predicts that the deficit in the Eurozone will increase from 3.2% to 2.4% of GDP “due to the almost complete withdrawal of energy aid” . Like the ECB, the EU executive branch fears the impact this aid will have on inflation as well as public debt. With the end of the period of suspension of the Stability Pact, governments must once again more decisively stabilize public finances: first because of the epidemic, then because of the energy crisis, the broad hand was released. Government aid has helped save the economy, but meanwhile, the ECB has repeatedly stressed that companies are making huge profit margins. Margins that keep inflation high, respectively. Brussels and Frankfurt’s rationale is therefore that ending aid is not only sustainable but necessary.

Source: Today IT