MNI: Further EU Measures Depend On Crisis Duration - Officials

Further European Union measures to support the economy through the energy price shock will depend on the duration of Middle East disruption, despite calls from some nations for a suspension of fiscal rules, EU officials told MNI, though they acknowledged their uneasiness with the scale of the shock which may be about to hit.

There will be no repeat of the massive EU-level support programmes seen during the pandemic, the officials said, pointing rather to potential for limited cheap loan schemes targeted at countries in need such as the EUR100 billion SURE programme which helped to maintain employment during Covid shutdowns. The Commission is also likely to follow suggestions from the International Energy Agency for measures to curb demand, the officials said, adding that these could complement the toolbox of energy support measures that the Commission is set to unveil by as early as next week. 

The toolbox will include more flexible EU state aid to allow governments to cut taxes on energy and reduce grid fees for energy-intensive industries. Windfall taxes on energy company profits as well as price caps may also come, while measures to boost the firepower of the Market Stability Reserve of the EU’s Emissions Trading System, including earmarking EUR30 billion of MSR funds for investment in sustainable energy, were announced on Wednesday. 

“There is a lot of moving money from the front pocket to the back pocket,” another source said. (See MNI: EU Energy Measures To Be Smaller Than In 2022-Official)

The lack of fiscal space at national level and reduced availability of EU resources as priorities like defence take precedence mean that the bloc’s usual response of relaxing fiscal rules and more joint borrowing may be more difficult to agree this time. 

FISCAL RULES

While Italy and Slovenia raised the issue of suspending borrowing rules at the March Eurogroup meeting, EU sources said that they suspected that such a move would only be considered by the European Commission in an extreme scenario of ruptured supply chains and manufacturing shutdowns.

For the moment, there is “no active debate” on this idea, one source said.

Economy Commissioner Valdis Dombrovskis has explicitly rebuffed calls for a general suspension of borrowing limits, pointing out that only a slowdown is expected, not the “severe economic downturn” affecting the whole euro zone as required by EU rules. 

Some officials take the view that in any case fiscal rules are not the real problem for states in the present crisis.

“States can take whatever flexibility they need, but interest rates may be the real constraint on their room for manoeuvre,” one source said.  

For the moment, the Commission and euro area finance ministers are focused on exploiting the inbuilt flexibility of the Economic Governance Framework which was revised in 2024. With Net Expenditure growth at its core, states are not obliged to take action to offset falls in tax revenue, rises in market interest rates or cyclical social spending.   

The EU is also holding regular meetings with the IEA, which has indicated to euro area finance ministers that if necessary it could make further releases of oil reserves on top of the 400-million-barrel release already announced, especially if supplies of specific products like diesel and jet fuel come under more stress.