The International Monetary Fund (IMF) said vulnerable households should be the main target of energy price relief measures and urged EU governments to guarantee that these won't do "more damage than good".
European capitals have failed to provide targeted measures to shield suffering households and businesses from soaring energy prices, Helge Berger, Deputy Director at the International Monetary Fund told Euronews' Europe Today show, urging member states to focus on concrete solutions for the most vulnerable.
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"Most governments have, in some way or another, tampered with the energy prices, which is not the way it should be going. So as time passes, if the situation continues, we need to be more targeted," said Berger, who leads the IMF's European Department.
Berger said the main target should be vulnerable households and urged EU governments to guarantee that measures won't do "more damage than good" as he recognised a "mix of good and bad policies" put forward by EU member states since the US-led war against Iran sent energy prices through the roof.
According to the IMF, oil prices have surged by around 70%, while European gas prices remain roughly 45% above pre-war levels. Although less severe than the 2022 shock, the increases are still expected to weigh heavily on growth.
As a response, several EU governments have lowered energy taxes, making energy artificially cheaper and discouraging people from using less energy or switching to alternatives, Berger warned.
The IMF representative warned capitals against "dampening the price signal" that results from higher oil, natural gas, and electricity prices, but instead to focus on targeted support.
Untargeted measures are not the answer
During the Eurogroup meeting on Monday evening, the IMF informed finance ministers that around 70% of the total cost of the measures taken in 2022, following Russia’s invasion of Ukraine, were either not targeted or distorted prices, or both.
In the current energy shock, the IMF noted that 33% of electricity subsidies, if untargeted, could go to the 20% richest of the population, compared to 11% for the poorest.
This gap is even wider when it comes to transport-fuel subsidies, which the IMF identified as potentially benefiting the richest households (34%) rather than the poorest (9%) if the measures are untargeted.
The IMF also noted that energy efficiency gains and a cleaner energy mix have made Europe more resilient, with European households having 12% less cost over the past five years.
Eurogroup leader Kyriakos Pierrakakis said on Monday evening that expectations for a rapid normalisation of the crisis in the Middle East have not been confirmed, following the gathering of eurozone ministers.
"This is the difficult reality we are facing, and we must address it with realism and responsibility,” the Greek leader said.
He said the IMF recognised Europe’s "positive starting point”, citing a “robust labour market” with “historic" lowest unemployment, but stressed that the effects of the crisis are not evenly distributed.
"Net energy importers and economies with limited fiscal space obviously face greater pressure. This obliges us to act with caution, with well-designed and with targeted policies,” Pierrakakis added.
With the Iran war and the closure of the Strait of Hormuz, Europe's dependence on imported fossil fuels has exposed its vulnerability, but the continent's situation is not as bad as it was in 2022 when Russia invaded Ukraine, the IMF said.
Berger said the continent is more resilient today thanks to the higher share of renewables in its energy mix.
"Any increase in energy prices as well is still bad for the economy, but it isn't as bad as it used to be," he added.