EU governments spent €18 billion in 2026 to cushion energy price jump

By Jan Strupczewski

BRUSSELS, Oct 1 (Reuters) - European Union governments spent €17.9 billion this year to cushion the effects of more expensive oil and gas on households and firms, the European Commission said in a note, urging countries to target needs better. 

In a note to guide discussions of euro zone finance ministers at an October 8 meeting, the Commission also urged governments to invest in power grids and tax electricity less than gas as an incentive to move away from fossil fuels.

The Commission said euro zone economic growth this year would be somewhat stronger than the 0.9% projected in May, but next year it is likely to be weaker than the last forecast of 1.2% growth. Inflation is likely to remain broadly in line with forecasts of 3.0% this year and be higher than the 2.3% previously expected in 2027, it said.

"Meanwhile the borrowing costs for Member States have substantially increased, underlining the need for fiscal prudence," the Commission note said.

"In this context, since the outbreak of the Middle East Conflict, 25 Member States have enacted fiscal policy measures to mitigate the impact of high energy prices on households or firms, with a budgetary cost of €17.9 billion (0.1% of EU-27 GDP) in 2026," it said.

"More than two-thirds of the support is on untargeted price measures and hence not in line with the need for short-term measures to be targeted to the most vulnerable, minimise fiscal costs and be coherent with the need to decarbonise the energy system." 

Euro zone government bond yields are close to multi-year highs and a deepening energy shock continues to underpin bets on at least three European Central Bank rate hikes by late 2027.

If governments want to help consumers and businesses, they should do so through short-term measures that are well-designed, targeted and temporary – a key lesson from the 2022 to 2023 energy crisis, the Commission said.

(Reporting by Jan Strupczewski; Editing by Andrew Cawthorne)