The European Commission does not appear willing to immediately implement “out-of-the-box” measures to address high energy prices, as Nicosia would like
“Uncertainty has become the new normal in the global economy,” said Eurogroup President Kyriakos Pierrakakis, a few days after the U.S. elections and the sharp fluctuations in international markets. This observation reflects the environment in which the European economy must operate. Geopolitical turmoil, high energy prices, rising borrowing costs, and uncertainty about the policies that major economies will pursue combine to create a challenging landscape. There is, however, a second certainty: the European Commission does not appear willing to immediately implement “out-of-the-box” measures to address high energy prices, as Nicosia would like.
The President of the Eurogroup is right about the international uncertainty. The wars in the Middle East and Ukraine, political developments in the U.S., and their impact on the markets leave little room for reliable forecasts. The new U.S. administration’s stance on geopolitical, trade, and economic issues will inevitably affect Europe as well. At the same time, political gridlock within the U.S. may complicate coordination between the White House and Congress, adding yet another source of instability.
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Part of this uncertainty has already spilled over into the markets, with stock market volatility and pressure on tech companies reflecting the prevailing sense of unease. The problem for Europe is that it faces not only international developments but also its own weaknesses.
One would expect that, at least on issues where it has the upper hand, the EU could act more quickly and decisively. Energy prices are a prime example. Households and businesses continue to be burdened by high energy costs, while the European response remains limited. Member states’ fiscal constraints, high public debt, and borrowing costs act as deterrents. At the same time, the varying economic capacities of the countries make it difficult to formulate a common policy.
And this is where one of the greatest contradictions of European economic policy lies. The EU is calling on businesses to remain competitive, invest, and accelerate the green transition, even as energy costs continue to be a significant disadvantage. At the same time, the scope for support is limited by fiscal rules and the financial resilience of member states.
What about Cyprus?
Cyprus’s request for greater flexibility fits within this context. Finance Minister Makis Keravnos called for “out-of-the-box” solutions at the recent Eurogroup meeting to address the impact of high energy prices. The response, however, from Economy Commissioner Valdis Dombrovskis was rather cautious. As he noted, they are examining which types of expenditures and investments can be considered eligible under the flexibility provisions for energy resilience.
In other words, there are neither immediate solutions nor any substantial change in approach. For Cyprus, this discussion is particularly important, as the effects of high energy prices are felt directly by households and businesses. The two cents remaining as a tax on heating oil are indicative of the limited scope for intervention. Not that such a reduction would substantially change the picture. Global uncertainty may indeed be the new normal. This does not mean, however, that households can continue to foot the bill for European stagnation indefinitely.
