Europe Insights - March 2022
Fiscal support to the rescue
- The conflict in Ukraine has brought the economic and defense security to the top of the EU agenda. Such a policy shift is pushing the case for additional fiscal support and some form of cost-sharing.
- In the short term, the policy response to surging energy prices has fallen upon national governments, resulting in discretionary measures to protect the most exposed firms and households. These emergency interventions mostly involve lower excise duties and VAT rates on utility bills, ranging from 0.4 per cent of GDP in Spain to around 1 per cent in France. More fiscal support is underway, but will be limited except for Germany.
- National fiscal responses may not be optimal, given the asymmetry of the Russian energy supplies across the EU economies. How Europe will finance its new economic and defense plan is unclear at this stage. But its role in organizing policy coordination, pushing for reforms, and monitoring the efficient allocation of resources would probably instill confidence. A series of proposals are expected throughout the coming months, spanning the upcoming EU summit, on 24-25 March, and the special EU summit at the end of May.