Eurogroup mulls measures against high energy prices, but gives Italy cold shoulder on flexibility

Brussels – How to respond to rising energy prices? The Eurogroup is attempting to find a unified, consistent, orderly, and coordinated response to a problem that everyone must address, during a meeting that will not alter the current state of play. Firstly, as European sources indicate, no operational conclusions are expected from today’s meeting (8 October); secondly, because the budgetary rules cannot be changed. “How long can the regulatory framework maintain its credibility if it proves to be flexible in every single practical situation?” officials in Brussels ask.

These remarks sound like a rebuke for Giorgia Meloni’s Italy, which continues to call for flexibility in public spending, in defiance of the common rules. The remarks take us back ten years to the 2015 euro crisis, with the then German Finance Minister, Wolfgang Schäuble, the leading advocate of austerity, warning against excessive flexibility that could undermine confidence. Back then, the aim was to save Greece from default, but there was also a political standoff between Italy and the European Commission over spending flexibility.

Governments may change, but Italy’s flaws remain the same – rejected today just as they were then. What the Meloni government and the Economy Minister, Giancarlo Giorgetti, are being credited with is their willingness to tackle the issue and begin considering how to alleviate the rise in energy and fuel prices, because, as EU sources themselves acknowledge, “it is inevitable that what is happening in the Middle East has affected our economy, even if not as severely as we feared so far.” 

However, there is some good news. The situation isn’t quite as bleak as it seems. Admittedly, “a particularly critical issue concerns the trend in diesel prices, which remain the industrial driving force behind our economies,” and a discussion of the measures to be implemented to safeguard against this appears necessary to think things through and tackle the issues properly. To give an example, as they argue in Brussels, “if we were to decide that the extra VAT revenue resulting from higher oil prices could be spent on discretionary measures in accordance with fiscal rules, would that be symmetrical?” Similarly, “when oil prices fall, and VAT revenue decreases, would we expect countries to find equivalent discretionary savings?”

The debate is ongoing, but “first and foremost, we must ask ourselves to what extent we want to amend our budgetary rules in response to every shock we face,” the EU source noted. In other words: the rules will not be changed.

At the Eurogroup meeting, which is set to be a lively one, another entirely new issue is on the agenda for the euro area’s finance ministers: the scope of what can be achieved with artificial intelligence, both in terms of potential productivity gains in public services and the possible implications of new technologies for the methods of collecting public revenue. The eurozone is beginning to consider how to tackle tax evasion.