The Managing Director of the IMF, Kristalina Georgieva, advised European Union countries to be fiscally prudent, on Thursday 11 June in Luxembourg, as the finance ministers of the euro area countries discussed the European Commission’s proposal to grant additional flexibility so that Member States can further reduce their dependence on fossil fuels (see EUROPE 13880/5).
According to Ms Georgieva, “the Commission has done the best it can” to put forward a provision to be used in exceptional circumstances. Her message was as follows: “Be very careful! We do not know how long energy supply disruptions will last”, she stressed. And for euro area countries already heavily indebted, “do not spend money you do not have!”
The discussion on this limited fiscal flexibility (0.6% of GDP in total over three years) for State aid to the energy transition will continue on Friday, during the ECOFIN Council.
For the President of the Eurogroup, Kyriakos Pierrakakis, the Commission proposal is “quite merited”, because it offers “some of flexibility”, while meeting infrastructure needs that help strengthen “the security of the EU”, while remaining “targeted”. He noted that, according to the IMF, the impact on the euro area of the surge in energy prices caused by the war in the Middle East is lower – around 12% – than during Russia’s military aggression against Ukraine, thanks to decarbonisation efforts undertaken since 2022.
By contrast, the Finnish minister, Riikka Purra, spoke out against the proposal for fiscal flexibility. “While energy security is a strategic priority, particularly in a situation such as the one we are currently experiencing, extending the national escape clause to energy aid must not undermine the credibility of the EU fiscal framework”, she said. She was in favour of accelerating the transition to clean energy, but by means of a “reprioritisation in national budgets”.
Aware of the “concerns” expressed by certain countries and the European Fiscal Board regarding a measure that would encourage fiscal laxity (see EUROPE 13885/30), the European Commissioner for Economy, Valdis Dombrovskis, reiterated the importance for Member States of consolidating their public finances, while arguing that the flexibility envisaged remains “targeted”.
Although the EU institution still has to provide Council experts with its guidance on eligible energy aid for households and businesses, he referred to the electrification of the vehicle fleet, the conversion of heating systems, renewable energy generation and investments in energy system integration.
It will certainly not involve reducing taxation on fossil fuels, a European source assured.
In its so-called ‘Article IV’ report on the macroeconomic situation in the euro area, the IMF revised down its previous growth forecasts for the euro area, bringing them to 0.9% of GDP in 2026 and 1.2% of GDP in 2027, and revised up its inflation forecasts, to 2.8% in 2026 and 2.3% in 2027.
See the IMF’s report: https://aeur.eu/f/mb3 (Original version in French by Mathieu Bion)