Fitch: Unchecked European Energy Relief Could Affect Public Finances
Impact of Energy Relief Measures on European Public Finances
LONDON, May 7 (Reuters) - European governments' blanket measures to shield households and businesses from high energy prices could have a significant impact on their public finances if they grow, a senior Fitch Ratings analyst said on Thursday.
Comparison of Current and Past Support Measures
So far, European governments have committed a much smaller amount of support measures since the Iran war than when Russia invaded Ukraine in 2022.
Focus on Universally Applicable vs. Targeted Measures
But they have focused on universally applicable measures like fuel tax cuts, while economists have cautioned that they should focus on targeted measures - such as those that centre on a lower-income households - given their already stretched budgets.
Country-Specific Approaches and Budget Constraints
Federico Barriga-Salazar, the rating agency's head of Western Europe sovereign ratings, told a webinar the measures so far were "tiny", ranging from 0.3% of output in Spain to less than 0.01% of output in France and Britain, reflecting tighter budgets in the latter countries.
Risks to the energy outlook mean some countries could potentially provide more support going forward, he added.
Effectiveness and Risks of Current Measures
"Unfortunately, up until this stage, most of them (the measures) have been untargeted. The only one that really has put in place targeted measures is Greece," said Barriga-Salazar.
"This could have of course some important effects, medium-term effects, on public finances, if the scope of these measures increase."
(Reporting by Yoruk Bahceli; Editing by Amanda Cooper)
