International Monetary Fund warns EU energy‑price measures benefit the wealthiest

Brussels – The measures that European Union countries are implementing to respond to the energy crisis triggered by the US and Israeli attacks on Iran favour the wealthiest rather than the poorest. This was confirmed before the Ministers of Economy and Finance gathered at the Eurogroup meeting on Monday (4 May) by the Deputy Director of the European Department of the International Monetary Fund (IMF), Oya Celasun. In practice, the risk is that debt and deficit end up being used to support the consumption of higher‑income households as they face fuel and energy costs.

 The IMF’s analysis begins with the observation that EU governments’ responses to the 2026 energy price shock were largely based on “untargeted and price-distorting” measures, as had already been the case in 2022 following Russia’s invasion of Ukraine and the ensuing crisis. But this poses a “risk.” In its review of the measures introduced between March and April 2026, the IMF identifies 125 support measures across the EU. The result is that “around 70 per cent of countries adopted at least one
excise tax cut, and many also limited price pass-through, subsidized firms, reduced VAT rates, or
introduced other—often untargeted—measures.” Furthermore, “more than 90 per cent of countries took at least one
price-distorting measure.” The outcome is that, “so far, the average fiscal cost is estimated at about 0.18 per cent of GDP, with
most costs stemming from untargeted measures,” blanket measures, which “are not just untargeted—they benefit the rich much more than the poor.” In numerical terms, “for
an economy-wide price reduction of €100, on average, the richest 20 per cent receive €34 via a road transport-fuel subsidy and €33 via an electricity subsidy,” while “the bottom 20 per cent would receive €9 and €11,
respectively.” In practice, “price-suppressing support skews benefits toward higher-income households.“

 Although the rise in gas prices due to the war in the Middle East is estimated to be around a fifth of that seen in 2022, instability remains high and, in this context, according to the IMF, the response four years ago offers clear lessons on what to avoid, as “untargeted support was costly.” In 2022 and 2023, EU countries spent around 2.5 per cent of GDP on support for households, and around 70 per cent of the total cost stemmed from measures that were untargeted, price-distorting, or both. “Instead, fully compensating
the bottom 40 per cent of households by income would have cut the fiscal bill to 0.9 per cent of GDP, while
achieving the objective of reaching the most affected​”, the IMF points out. At present, “near-term effects are concentrated in
transport fuels” and, “the average EU household would lose about €375 in 2026—0.7
per cent of average consumption—from all price hikes.” This picture also shows significant variations in the impacts, ranging from €620 in Slovakia to €134 in Sweden. In a “severe” scenario, however, the average loss would rise to €1,750. As for Italy, the estimated impact ranges from €400 to €450 in the baseline scenario and from €2,000 to €2,500 in the severe scenario.

In practice, according to the IMF, any form of support should be “targeted, temporary, and implementable—without distorting price signals.” In other words, avoid cuts to consumption taxes or price controls (cuts, price caps) and allow international prices to be passed on to end consumers to encourage saving, given that global supply is limited and import prices are high. Where provided, support should instead focus on vulnerable households through targeted cash transfers, ideally delivered via existing social safety nets, and scaled up using income data from tax or payroll systems. Alternatively, where income-based assistance is not feasible, targeted cash transfers by category (e.g., by age, disability, or family status), lump-sum utility bills discounts for households below a certain income threshold, and bill smoothing. As for businesses, support “should be strictly limited”, and in any case “coordinated at the European level to
safeguard the level playing field (and limit cascading calls for support).” According to IMF estimates, “fully compensating the
bottom 20 per cent of households for the rise in energy prices this year would cost about 0.03 per cent of
GDP under current market pricing, rising to 0.15 per cent in the severe scenario.” 

Finally, the report highlights how social equity and the energy transition go hand in hand. According to the Fund, continuing along this path is the “surest way” for the EU to reduce its exposure to fossil-fuel price shocks and lower long-term energy costs. For example, greater efficiency and the shift to renewable energy over the last five years have reduced the impact on households by 12 per cent at current prices, and in the severe-case scenario, the reduction rises to 17 per cent, or €270 per household, amounting to total savings of around €53 billion. For this reason, the path forward appears clear and is one where “energy security, affordability, and the transition to renewables are mutually reinforcing.” However, it is acknowledged that “more remains to be done to expand low-carbon, low-marginal-cost energy generation and further
integrate Europe’s electricity grid.”