European Central Bank President Christine Lagarde urged governments not to go overboard on help for voters to weather the surge in energy prices, pleading fiscal restraint.
In remarks that appeared to caution against a repeat of large-scale aid delivered in the wake of the outbreak of war in Ukraine in 2022, she tackled the matter in her opening statement to reporters on Thursday.
“The Governing Council highlights the urgent need to strengthen the euro area economy while maintaining sound public finances,” Lagarde said after the ECB kept its interest rates unchanged. “Any fiscal responses to the energy price shock should be temporary, targeted and tailored.”
Governments around the region have already begun reacting to the lingering energy shock caused by the war in Iran. Brent crude remains above $100 a barrel, while benchmark European natural gas futures surged on Thursday after damage to the world’s largest liquefied natural gas export plant in Qatar.
Among responses so far, Prime Minister Giorgia Meloni’s coalition approved a temporary cut to Italy’s excise taxes on fuel this week. Germany’s finance ministry is considering a windfall levy on oil companies, separate to measures imposing a once-a-day limit on gasoline price increases at the pump.
Luxembourg joins international oil release as prices climb
Any action in France may focus the ECB most, given that country’s spending last time round, and its struggle to bring down a deficit that is already likely to stay stuck well above the European Union’s 3% of output ceiling for years to come.
In a report last week, UniCredit economist Tullia Bucco explained how governments are still paying the bill for largess in 2022.
“The deterioration in public finances stemming from the Covid-19 and energy crises and the resulting increase in refinancing costs significantly constrain the room for maneuver in many European countries,” she said. “Should the conflict persist, any measures will need to be carefully targeted towards vulnerable households and, where appropriate, energy‑intensive industries.”
Lagarde acknowledged the impact already hitting consumers, noting that it is “weighing on real incomes and confidence” and is projected to hurt them even more in more dramatic scenarios cooked up by the ECB as part of its quarterly forecasts.
She used the occasion to restate the case to decarbonize energy supply and reform economies.
“The current energy crisis underscores the imperative to further reduce dependence on fossil fuels,” Lagarde said. “Completing the savings and investments union is vital to fund innovation and support the green and digital transitions.”
The war in Iran is one of the key matters of discussion in Brussels on Thursday as EU leaders meet for a summit. Lagarde ended her press conference early to head to that gathering.
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