The possibility of taxing energy companies’ windfall profits is being considered
The main conclusion from last week’s Eurogroup and ECOFIN meetings is that citizens should not expect measures that will immediately eliminate the price hikes or cover the entire burden. Even if new interventions are decided upon, their scope and duration will depend on European decisions, with the mood in Brussels clearly negative.
In fact, proposals for greater fiscal flexibility—as requested by Greece and Italy to create more room to address energy costs— appear to be falling on deaf ears for the time being, despite assurances that the measures will be targeted.
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The main concern is that increased government spending will put further pressure on Eurozone government bonds and raise borrowing costs. Already, the yield on the French 10-year bond has approached 5%, making it particularly expensive to issue new debt.
This does not mean that new measures are out of the question. It does, however, limit expectations for large-scale interventions. The approach currently under discussion leans more toward temporary and targeted support than toward blanket subsidies that would cover all consumers indiscriminately.
Taxing windfall profits is also on the table
One of the options being considered involves the possibility of taxing the windfall profits of energy companies. According to media reports, the European Commission is examining the possibility of implementing such a measure at the European level, following requests from member states, including Germany.
The rationale behind the proposal is that a portion of the windfall profits that may result from high energy prices could be used to support consumers. However, this is an option currently under consideration and not a final decision.
Cyprus: Keravnos’ Expectations Ahead of the European Council
The overall situation leaves very little room for maneuver in Nicosia, even though the latter had been counting on a more positive stance from Brussels. Ahead of the meeting in Luxembourg, Mr. Keravnos expressed his confidence that the European Commission would be able to respond to member states’ calls for greater flexibility in economic governance and for additional spending.
This stance indicates that Nicosia seeks to keep the discussion open regarding additional tools to address the crisis. The question, however, is whether this approach will receive the necessary support at next week’s European Council meeting.
If greater fiscal flexibility is not granted next week, Nicosia will find itself in the unenviable position of recording budget surpluses but being unable to proceed with further tax cuts or additional subsidies.
This is because Cyprus is already close to its limits in terms of spending increases and has little room left to further reduce fuel taxes. It could, of course, freeze other expenditures and redirect the corresponding funds to support fuel consumers. This, however, would be a truly difficult equation, one that no one in the government would want to be called upon to solve.
