European governments should allow increases in energy prices to be passed on to consumers to encourage “energy savings” and facilitate the green transition. At the same time, it is a priority for governments to support low-income families. This was affirmed by the International Monetary Fund, according to which instead of support for rain to cope with the expensive energy, targeted interventions should be favored for the poorest sections of the population.
“We estimate that the recent jump in international fossil fuel prices will increase the cost of living for European households by nearly 7% in 2022”, notes the Fund in an article by Oya Celasun, Dora Iakova and Ian Perry, stating that the biggest increases of “prices occurred in countries with higher dependence on natural gas and more limited electricity interconnections, such as Ireland, Italy, Portugal, Spain and the United Kingdom”.
Consumer energy prices are rising at an annual rate of nearly 40% in the euro area and 57% in the UK, reflecting the surge in wholesale oil and gas prices following the Russian invasion of the United Kingdom. Ukraine. This means that households’ disposable income is drastically reduced, particularly in the poorest households, who spend more of their money on electricity and gas.
European governments have so far tried to protect households from soaring costs with price controls, tax cuts and wide-ranging subsidies, regardless of the different categories of risk. Existing measures include energy price caps in France, Spain and Portugal, electricity tax cuts in Germany and the Netherlands, energy subsidies in Italy and Greece, and allowances in Germany and the UK.
For the IMF, it is time to change methods: such measures not only delay the necessary adjustment to the energy shock, but also keep global demand and prices higher than they would otherwise be, the Fund experts warn. If anything, the policies of EU countries “should allow the entire increase in fuel costs to pass to end users to encourage energy saving and the abandonment of fossil fuels”, but “while protecting the poorest families”.
Saying goodbye to aid in the rain and concentrating it on the population most at risk (to be precise, the poorest 20% of the population) would involve an average expenditure for European countries equal to 0.4% of their GDP for 2022. measures taken so far could lead to spending over 1.5% of GDP. Celasun and colleagues also point out that since prices are expected to remain high for several years, “the reasons for supporting businesses are generally weak”.