EU – Eurogroup advocates renewable investments over tax relief in the face of energy prices

Eurozone finance ministers, the Eurogroup, on Monday advocated promoting medium-term investments in renewable energy and energy efficiency instead of tax relief to cope with rising energy prices.

In a joint communication, the Eurozone finance ministers said that «the negative effect» of high energy prices cannot be addressed in the long term with «compensatory fiscal measures», and concluded that medium-term investments will be needed to boost the development of environmentally sustainable local energy sources and energy efficiency.

«There is consensus that fiscal measures should not be aimed at supporting demand and should focus on protecting the most vulnerable,» Eurogroup President Paschal Donohoe stressed at a press conference, in a reversal of the stimuli put in place to alleviate the impact of the pandemic.

«It is important to focus support and invest in long-term solutions in renewables and energy efficiency,» added the Eurogroup president on the agreement reached between the Nineteen.

Thus, the ministers of Economy and Finance have stressed that the broad fiscal measures should be temporary and «tailored to the most vulnerable», something that would apply to both general tax reductions and those of excise duties, so that the design of these instruments is aimed at mitigating the rise in energy prices.

The Commissioner for the Economy, Paolo Gentiloni, has stressed the importance of the measures being temporary and focused on the most vulnerable to avoid «the risk of undermining our own climate transition with these measures» and has urged to keep «spending» in mind.

In a further step, Gentiloni recalled that the decision to extend the suspension of public debt and deficit limits until the end of 2023, through the activation of the escape clause of the Stability and Growth Pact, sought to give «agility» to Member States to establish such temporary measures but indicated that «incentives for energy efficiency should also be maintained».

An aspect on which the Nineteen also stressed that fiscal policies must be «agile» and «flexible» in order to adjust quickly to changing circumstances.

Thus, in view of the preparation of national budgets for 2023, the Eurogroup has opted to maintain incentives for «just» energy transition and to implement fiscal measures focused on revenues rather than prices.

The Eurogroup has advocated that the fiscal policies to be put in place should prioritize «debt sustainability» and raise «growth potential in a sustainable way to boost the recovery». All this would result in a monetary policy that ensures price stability without adding inflationary pressure, the ministers said.

Along these lines, Donohoe insisted on the importance of «debt sustainability» to «maintain long-term growth» and thus avoid taking decisions «that increase inflationary pressure and complicate economic policy».

For his part, Gentiloni recalled that the European Commission has asked Member States to apply «prudent» and «stability-oriented» fiscal policies, especially in the case of EU countries with higher debt levels.

In any case, the Eurogroup has agreed that these fiscal instruments should be adjusted to the economic and budgetary circumstances of each Member State, including those related to the exposure to the Ukrainian refugee crisis.

On the other hand, «fiscal policies should focus on alleviating the supply constraints that are holding back our economies,» said the economy ministers. A framework in which they have stressed that investments in green and digital transition should remain «a priority» as well as diversifying energy supply and improving independence from Russian fossil fuels.

The heads of Economy of the Eurozone have recognized that the Russian military aggression in Ukraine has altered the «geopolitical and economic context» and that the high prices of energy, food and raw materials have added «inflationary pressure and reduced growth prospects.»

Disruptions in the supply chain as well as labor shortages in some sectors could limit near-term growth prospects, which is coupled with financial volatility in markets and other global risk factors such as war, the Nineteen have reminded.

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