European nations fail to target energy support measures amid crisis
Governments across Europe face a growing energy crisis following the Strait of Hormuz blockade, which has resulted in a second major shock in four years.
The blockade of the Strait of Hormuz represents Europe’s second major energy shock in four years, intensifying challenges across multiple member states.
“The prescription is not optional. Governments must stop treating the price signal as the enemy,” stated Pierre Wunsch, Governor of the National Bank of Belgium.
Key developments
The Strait of Hormuz blockade has prompted a significant energy crisis in Europe, echoing past shocks from 2022, with governments failing to adapt their measures effectively.
Pierre Wunsch, Governor of the National Bank of Belgium, emphasised the need to cut energy demand, warning against broad support measures that worsen the crisis rather than alleviate it.
Despite various fiscal responses across member states, none fully comply with the European Central Bank‘s triple-T framework, prolonging Europe’s energy challenges.
Europe is subsidising its way into a deeper energy crisis
By Judith Arnal, PhD in Economics and a State Economist in Spain and Senior Research Fellow at CEPS, Elcano Royal Institute and Fedea.
Published on
The opinions expressed in this article are those of the author and do not represent in any way the editorial position of EU News.
The Strait of Hormuz blockade has handed Europe its second major energy shock in four years. Governments have responded with speed, but without learning. T
he Governor of the National Bank of Belgium, Pierre Wunsch, put it bluntly: “We must primarily reduce demand now.” Broad energy support measures, he warned, would be like “pouring gasoline” on the problem.
He is right. Yet most governments are doing exactly that – repeating the mistakes of 2022 with striking precision, and in some cases making them worse.
Suppressing price signals means prolonging the crisis
A comparative assessment of fiscal measures adopted by Germany, France, Italy, Spain, Poland and Hungary against the European Central Bank’s (ECB) triple-T framework – targeted, tailored, temporary – reveals not a single member state fully satisfies it.
The logic behind the three criteria is simple and unanswerable: support directly those who cannot absorb the shock (targeted), preserve the price signal that drives the demand adjustment Europe desperately needs (tailored), and expire before emergency measures harden into permanent entitlements (temporary).
Every euro spent suppressing the price signal is a euro spent prolonging the crisis.
The hierarchy of failure is clear
The hierarchy of failure is clear. At the bottom sit Hungary and Poland, whose direct price caps on petrol and diesel suppress the price signal entirely, benefit high-consumption households most, and drag in secondary distortions, like an export ban on crude and refined products in Hungary’s case and fuel tourism in Poland’s.
Spain, Italy and Germany occupy the next rung, joined by Hungary and Poland on this dimension: all five now deploy broad Value Added Tax (VAT) or excise duty cuts that fail targeting and tailoring simultaneously, with benefits that grow with consumption. The Commission has already questioned whether the Spanish and Polish VAT cuts on motor fuels are compatible with the VAT Directive.
Yet not everything is poorly designed. Spain’s reinforced thermal voucher – a direct income transfer to households identified through vulnerability criteria — is one of the few measures that passes all three tests. Italy’s sectoral tax credits for transport, fisheries and agriculture do not intervene directly in prices and target sectors with demonstrable exposure, though they remain tied to fuel consumption, which blunts the incentive to adjust demand.
France stands alone as the member state that has come closest to the ECB’s benchmark. Paris chose not to intervene in pump prices despite transport-sector protests, relying instead on administrative tools – 500 inspections at petrol stations to detect abusive margins, liquidity support through Bpifrance, and deferrals of tax and social security obligations.
Its €70 million in budgetary support for transport, agriculture and fisheries is the weakest link: still tied to fuel consumption. But the French approach is at least coherent.
European levy on extraordinary profits of energy companies
Beyond national measures, five governments have turned to the question of who should finance them. On 3 April, the Finance and Economy ministers of Austria, Germany, Italy, Portugal and Spain sent a joint letter to Commissioner Wopke Hoekstra urging the Commission to develop, as a matter of urgency, a European levy on extraordinary profits of energy companies – echoing the solidarity contribution adopted under Regulation 2022/1854.
But the 2022 levy got two things wrong, and a second attempt must not repeat either. It taxed the wrong base and it let member states opt out or design national equivalents with no binding standard, fracturing the single market – Spain, for instance, taxed net turnover, which has nothing to do with windfall gains.
Any new instrument must fall on genuine economic profit. And even then, a windfall levy should not become a reflex: as the sector’s own tax bases broaden with higher prices, revenues will rise without one.
Governments must stop treating the price signal as the enemy
The pattern is damning, and the prescription is not optional. Governments must stop treating the price signal as the enemy. Blanket tax cuts and price caps should be replaced immediately with direct income transfers for vulnerable households and liquidity support and non-earmarked tax credits for exposed sectors.
Emergency measures should expire not on calendar dates that politicians can quietly extend, but on predefined market triggers that depoliticise the withdrawal decision. And the Commission should establish an ex ante notification and assessment framework, grounded in the ECB’s triple-T criteria, so that Member States understand the aggregate impact of their measures before adoption, not after.
The alternative – another round of untargeted subsidies that delay adjustment and deepen fiscal holes – is not crisis management. It is crisis prolongation.
Judith Arnal holds a PhD in Economics and is a State Economist in Spain. She is also a Senior Research Fellow at the Centre for European Policy Studies (CEPS), the Elcano Royal Institute and the Fundación de Estudios de Economía Aplicada (Fedea).