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ENERGY

How European countries are spending billions on easing energy crisis

European governments are announcing emergency measures on a near-weekly basis to protect households and businesses from the energy crisis stemming from Russia's war in Ukraine.

How European countries are spending billions on easing energy crisis
Photo by Arthur Lambillotte on Unsplash

Hundreds of billions of euros and counting have been shelled out since Russia invaded its pro-EU neighbour in late February.

Governments have gone all out: from capping gas and electricity prices to rescuing struggling energy companies and providing direct aid to households to fill up their cars.

The public spending has continued, even though European Union countries had accumulated mountains of new debt to save their economies during the Covid pandemic in 2020.

But some leaders have taken pride at their use of the public purse to battle this new crisis, which has sent inflation soaring, raised the cost of living and sparked fears of recession.

After announcing €14billion in new measures last week, Italian Prime Minister Mario Draghi boasted the latest spending put Italy, “among the countries that have spent the most in Europe”.

The Bruegel institute, a Brussels-based think tank that is tracking energy crisis spending by EU governments, ranks Italy as the second-biggest spender in Europe, after Germany.

READ ALSO How EU countries aim to cut energy bills and avoid blackouts this winter

Rome has allocated €59.2billion since September 2021 to shield households and businesses from the rising energy prices, accounting for 3.3 percent of its gross domestic product.

Germany tops the list with €100.2billion, or 2.8 percent of its GDP, as the country was hit hard by its reliance on Russian gas supplies, which have dwindled in suspected retaliation over Western sanctions against Moscow for the war.

On Wednesday, Germany announced the nationalisation of troubled gas giant Uniper.

France, which shielded consumers from gas and electricity price rises early, ranks third with €53.6billion euros allocated so far, representing 2.2 percent of its GDP.

Spending to continue rising
EU countries have now put up €314billion so far since September 2021, according to Bruegel.

“This number is set to increase as energy prices remain elevated,” Simone Tagliapietra, a senior fellow at Bruegel, told AFP.

The energy bills of a typical European family could reach €500 per month early next year, compared to €160 in 2021, according to US investment bank Goldman Sachs.

The measures to help consumers have ranged from a special tax on excess profits in Italy, to the energy price freeze in France, and subsidies public transport in Germany.

But the spending follows a pandemic response that increased public debt, which in the first quarter accounted for 189 percent of Greece’s GDP, 153 percent in Italy, 127 percent in Portugal, 118 percent in Spain and 114 percent in France.

“Initially designed as a temporary response to what was supposed to be a temporary problem, these measures have ballooned and become structural,” Tagliapietra said.

“This is clearly not sustainable from a public finance perspective. It is important that governments make an effort to focus this action on the most vulnerable households and businesses as much as possible.”

Budget reform
The higher spending comes as borrowing costs are rising. The European Central Bank hiked its rate for the first time in more than a decade in July to combat runaway inflation, which has been fuelled by soaring energy prices.

The yield on 10-year French sovereign bonds reached an eight-year high of 2.5 percent on Tuesday, while Germany now pays 1.8 percent interest after boasting a negative rate at the start of the year.

The rate charged to Italy has quadrupled from one percent earlier this year to four percent now, reviving the spectre of the debt crisis that threatened the eurozone a decade ago.

“It is critical to avoid debt crises that could have large destabilising effects and put the EU itself at risk,” the International Monetary Fund warned in a recent blog calling for reforms to budget rules.

The EU has suspended until 2023 rules that limit the public deficit of countries to three percent of GDP and debt to 60 percent.

The European Commission plans to present next month proposals to reform the 27-nation bloc’s budget rules, which have been shattered by the crises.

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ITALIAN ELECTIONS

EU sees trouble but no breakdown if Italy’s far right takes power

The potential emergence of a far-right government in Italy has put the European Union on alert for disruptions, with fears that unity over the war in Ukraine could be jeopardised.

EU sees trouble but no breakdown if Italy's far right takes power

Brothers of Italy leader Giorgia Meloni and the League’s Matteo Salvini are slated to be the big winners in Sunday’s general election on a firmly “Italians First” agenda, in which officials in Brussels largely play the role of the bogeyman.

The biggest worries concern the economy.

Italy’s massive debt is seen as a threat to European stability if Rome turns its back on the sound financing championed by outgoing prime minister, Mario Draghi, a darling of the EU political establishment.

A victory by nationalists Meloni and Salvini would follow fast on an election in Sweden where the virulently anti-migration and eurosceptic Sweden Democrats entered a ruling coalition, just months before the Scandinavian country is due to take over the EU’s rotating presidency.

READ ALSO: Giorgia Meloni’s party will likely win the elections – but will it last?

But officials in Brussels said they would not jump to conclusions about Italy, cautiously hanging on to reassurances made by key right-wing players ahead of the vote.

Giorgia Meloni delivers speech at party rally

Brothers of Italy leader Giorgia Meloni (Rear C on stage) delivers a speech on September 23, 2022 in Naples. (Photo by Andreas SOLARO / AFP)

“This is not the first time that we risk confronting governments formed with far-right or far-left parties,” said European Commissioner Didier Reynders, a veteran of EU politics.

“Let voters choose their elected representatives. We will react to the actions of the new government and we have instruments at our disposal,” he added.

That was echoed by Commission head Ursula von der Leyen, who warned that Brussels had “tools” to deal with errant member states.

“My approach is that whatever democratic government is willing to work with us, we’re working together,” she said.

Anti-immigration League leader Matteo Salvini condemned the EU chief’s comments on Friday, calling them “squalid threats”.

‘Benefit of the doubt’

Italy has huge amounts of EU money on the line. It is awaiting nearly 200 billion euros in EU cash and loans as part of the country’s massive share of the bloc’s coronavirus recovery stimulus package.

In order to secure each instalment, the government must deliver on a long list of commitments to reform and cut back spending made by previous administrations.

EXPLAINED: Is Brothers of Italy a ‘far right’ party?

“To do without the billions from the recovery plan would be suicidal,” said Sebastien Maillard, director of the Jacques Delors institute.

“We will give them the benefit of the doubt,” said an EU official, who works closely with Italy on economic issues.

and right-wing parties Brothers of Italy (Fratelli d'Italia, FdI), the League (Lega) and Forza Italia at Piazza del Popolo in Rome, ahead of the September 25 general election.

(From L) Leader of Italian far-right Lega (League) party Matteo Salvini, Forza Italia leader Silvio Berlusconi, leader of Italian far-right party Brothers of Italy Giorgia Meloni, and Italian centre-right lawmaker Maurizio Lupi on stage on September 22, 2022 during a joint rally of Italy’s coalition of far-right and right-wing parties. (Photo by Alberto PIZZOLI / AFP)

“We will judge them on their programme, who will be the finance minister. The names being mentioned are people that we in Brussels are familiar with,” the official added.

READ ALSO: Political cheat sheet: Understanding the Brothers of Italy

However, when it comes to Russia, many fear that Hungarian Prime Minister Viktor Orban will find in Italy a quick ally in his quest to water down measures against Russian President Vladimir Putin.

A longtime friend of the Kremlin, Salvini has promised that he will not try to undo the EU sanctions. But many believe that his government will make the process more arduous in the coming months.

Whether the war or soaring inflation, “what we are facing in the coming months is going to be very difficult and very much test European unity”, said Fabian Zuleeg, chief executive at the European Policy Centre.

The likely election result in Italy is “not going to help in making some of these hard decisions”, he added.

READ ALSO: TIMELINE: What happens on election day and when do we get the results?

France’s European affairs minister, Laurence Boone, pointed to the headache of the far-right’s unpredictability.

“One day they are for the euro, one day they are not for the euro. One day they support Russia, one day they change their minds,” she told French radio.

“We have European institutions that work. We will work together. But it is true that it is worrying,” she added

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