EU officials are urging governments to avoid excessive support to offset surging energy prices, warning that the shock triggered by the Iran war could tip into a fiscal crisis.
The European Commission is insisting in discussions with member states that proposed energy subsidies, tax cuts and price caps be limited in time and scope, according to people briefed on the talks. Brussels is seeking to avoid a repeat of the 2022 energy crisis, which fuelled rampant inflation and ballooning deficits.
“This is a unified effort from the Commission,” EU energy commissioner Dan Jørgensen told the FT. “What happens in one sector of the economy can spill over to the rest of society.”
Several countries including Ireland, Italy, Poland and Spain have cut fuel taxes, while others have called for EU state aid rules to be loosened. Rome is also pushing for Brussels to ease fiscal constraints to give capitals more wriggle room.
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The Commission was giving “technical advice and help to countries to form these policy tools and instruments that they want to use ... within the fiscal room that they have”, Jørgensen said.
US strikes on Iran have pushed European oil and gas prices up by about 60 per cent and raised fears of diesel and jet fuel shortages. The conflict “has a huge, unfortunately, risk of leading to higher inflation with all of the negative effects”, he said.
The Commission was urging “co-ordination and caution” on any measures aimed at easing energy price pressures, officials briefed on talks between Brussels and national finance ministries said.
Officials fear the conflict will trigger the third economic crisis for the EU in six years, after the Covid-19 pandemic and Russia’s full-scale invasion of Ukraine in 2022, both of which prompted large stimulus programmes that drove up national debt.
The EU’s general government gross debt-to-GDP ratio rose from 77.8 per cent at the end of 2019 to 82.1 per cent in the third quarter of last year, according to the latest available data.
“Targeted government policies can help smooth the shock by reducing energy demand and compensating lower-income households,” European Central Bank president Christine Lagarde said last month. However, she warned that “broad-based and open-ended measures” may backfire as they could fuel demand “excessively” and drive inflation.
She urged policymakers to focus on “temporary, targeted and tailored” action.
EU economy commissioner Valdis Dombrovskis has told national finance ministers that only “coherent”, short-term emergency measures should be adopted. He warned that excessive spending would “have serious fiscal implications”, given that the Covid-19 and Ukraine crises, alongside a surge in defence spending since 2022, have left governments with less fiscal firepower.
“Our emphasis ... is that we have limited fiscal room for manoeuvre, so whatever member states do has to be temporary and targeted,” Dombrovskis said late last month.
Italian finance minister Giancarlo Giorgetti last week said it was “inevitable” that Brussels would have to be more lenient in enforcing rules limiting countries’ budget deficits to just 3 per cent of GDP.
That came after Rome extended a “temporary” 20 per cent excise tax on fuel until May 1st, and the country’s official statistics agency said the 2025 deficit was 3.1 per cent of GDP.
“It is clear that, unless the situation changes, discussions at the European level will be inevitable,” Giorgetti said.
The finance ministers of Germany, Spain, Italy, Portugal and Austria on Friday urged Brussels to impose an EU-wide windfall tax on energy companies, to ease the “burden on the European economy and on European citizens”.
Published by Spain’s finance minister Carlos Cuerpo, the letter cited a 2022 cap on the revenues of power companies during the gas price surge caused by Russia’s invasion of Ukraine.
“Given the current market distortions and fiscal constraints, the European Commission should swiftly develop a similar EU-wide contribution instrument,” they said.
Poland has slashed VAT and excise duties on fuel, amounting to 1.6bn zlotys (€370 million) a month in lost tax revenues. The government plans to offset this with a windfall tax on the profits of energy companies. Details of that new tax have not yet been published.
Governments considering subsidies and other state aid to support affected sectors have been warned they must still comply with EU rules aimed at greening the economy and reducing reliance on fossil fuels, officials said.
“The problem in a crisis like this is that we sometimes have to support and subsidise things that we would not normally dream about, but it has to be done in the short term,” Jørgensen said. “Otherwise people will freeze or production will close down.” – Copyright The Financial Times Limited 2026
