As energy price pressures ease, the EU will continue phasing out energy support measures across member states. This commitment was reaffirmed at a recent Eurozone meeting of economy and finance ministers. In a joint statement, officials emphasized that a generalized fiscal stimulus is unnecessary and that attention should stay on protecting the most vulnerable households and businesses in 2023, with the flexibility to adapt to changing conditions. A review of 2023 budget plans notes that Spain views Brussels’ analysis as sound, while cautioning that highly indebted countries should pursue prudent fiscal policy. [Citation: Eurogroup communique]
The direct budgetary cost of measures enacted this year stood at 1.3% of eurozone GDP. With many measures expiring early in 2023, the cost could drop to about 0.9% next year, but the Eurogroup warned it could rise significantly if measures are extended. They stressed a shared goal to make support more efficient, better coordinated, and affordable. They added that in 2023 the measures would be reviewed to ensure they target temporarily exposed households and viable businesses. [Citation: Eurogroup projection]
Commissioner Paolo Gentiloni cautioned that extending existing measures or introducing new ones could push budget deficits higher than expected, potentially running counter to the European Central Bank’s inflation-reduction efforts. The Eurogroup’s chair also noted that the group would work monthly to improve measurement quality. [Citation: European Commission remarks]
two-level system
The Eurogroup considered the possibility of a well-calibrated two-tier energy pricing model and other regimes that fit national circumstances. The aim is to reduce dependence on external energy sources, accelerate decarbonisation, and preserve price signals that curb energy use while encouraging investment in future energy infrastructure. This includes energy efficiency, stronger interconnections, storage, and the adoption of innovative renewable technologies. [Citation: Eurogroup policy discussion]
Officials stated that fiscal policy responses to energy support will be coordinated in the euro area, with ongoing discussions at upcoming meetings about a common approach for households. This includes evaluating which measures should be extended beyond 31 December and which should end or be targeted to specific groups. Nadia Kalvino, the vice president and minister of economy, confirmed that the government is examining options to limit energy aid. [Citation: Eurogroup statement]
technical recession
The group endorsed Brussels’ macroeconomic analysis and warned that eurozone countries and many member states face the risk of a technical recession this winter. The causes include slower activity driven by higher energy costs, eroded real incomes, a softer external environment, and tighter financial conditions. Although growth is expected to resume in spring, uncertainty remains high. [Citation: Brussels macroeconomic outlook]
The euro area deficit is projected to fall to 3.5% of GDP in 2022, with a rise to 3.7% anticipated for 2023. Several member states are expected to run larger deficits than the 3% threshold in 2023, rising from 10 to 12. Public debt among euro area countries is forecast to ease to about 92% of GDP next year, still above pre-crisis levels. Public investment is seen rising across many member states, supported in large part by recovery plans. The Eurogroup notes that high-debt countries should pursue prudent fiscal policy, particularly by limiting growth in non-interest current expenditure funded nationally. Meanwhile, countries with lower debt levels will aim for neutral fiscal policy. [Citation: Brussels forecast]