A double challenge for the eurozone

Eurogroup president Kyriakos Pierrakakis told reporters in Luxembourg, after a meeting of eurozone finance ministers, that the bloc faces a double challenge from the energy shock. Higher energy prices and rising inflation weigh on households and businesses, while pressure is building in government bond markets. Pierrakakis said the task is to protect "households and businesses and every European who is bearing the cost of the energy shock" while safeguarding "the credibility of our fiscal rules".

According to Pierrakakis, energy prices have returned to high levels since late August, affecting products such as diesel and jet fuel. He acknowledged that Europe is exposed to serious external energy risks.

Requests from Greece and Italy

Pierrakakis was asked about requests from southern countries for greater flexibility. He referred to letters sent by the Greek prime minister and the Italian prime minister, while noting that other member states have taken initiatives with different emphasis. He said "we all understand that we have to do both", within the framework of the rules currently in place.

Greece is asking that temporary support measures for households and businesses be excluded, up to a specific limit, from the net expenditure indicator, taking into account extra VAT revenue caused by unexpected price rises. Italy proposes that part of the higher tax revenue generated by higher inflation be usable for temporary, targeted measures. The two proposals are not identical but both aim to create additional fiscal room.

Resistance from other member states

The Dutch finance minister Eelco Heinen rejected the requests. "Every time we face a problem, I hear the same thing: make the fiscal rules more flexible", he said when asked specifically about the Greek and Italian requests.

"We keep piling debt on top of debt, and that makes our problems even bigger", he added, insisting on limiting spending and implementing reforms.

Belgium moved in the same direction. Finance minister Vincent Van Peteghem said he does not support changing the fiscal rules or creating a national escape clause procedure for the energy response.

Market pressure and the wider picture

Pierrakakis linked the bond market pressures partly to higher demand for private debt and to changes in the global economic environment. He described these developments as having a "global character" and said all relevant factors are "taken into account as a whole". He added that bond market movements are being monitored closely.

Commission guidance

European Commissioner for the Economy Valdis Dombrovskis said that short-term price pressures may continue as the bloc enters winter. "Horizontal measures would not only have an excessively high fiscal cost, but would also increase demand and energy prices and, as a result, would not help those who need it", he said.

Pierrakakis also called for long-term planning and investment to strengthen Europe's energy autonomy, meaning more clean energy, wider use of electricity, stronger grids and better interconnections. "Energy security, competitiveness and the transition to clean energy are interdependent priorities. Europe must make progress in all three areas", he said.