How European authorities fight inflation


geralt / Pixabay All major European economies have taken action in recent weeks, ranging from the German macro-aid package, which has raised concerns in other countries, to the UK tax cut that triggered turbulence in the markets and forced the Bank of England to intervene. Here’s how individual governments respond to the energy and inflation crisis:

Germany’s ambitious plan

The German economy minister Robert Habeck and the finance minister Christian Lindner last Thursday (September 29) in Berlin presented a powerful aid package with which the government of Olaf Scholz intends to fight inflation and mitigate uncontrolled increases in energy prices. Planned solutions, introducing, inter alia, the price limit for blue fuel is to cost –bagatela – 200 billion euro. Scholz has set up a committee of experts to present the details of the German protective umbrella in two weeks time. The preliminary proposal assumes that, both in the case of electricity and gas, a maximum price will be established for the so-called basic consumption. In addition, the government intends to support gas importers who are on the verge of bankruptcy due to the fact that Moscow has cut off supplies. In August, Berlin lowered the VAT rate on fuel from 19 to 7 percent. Essentially, it was supposed to compensate for the controversial gas surcharge that consumers were expected to pay from October 1, but which was finally abolished. Social democracy manager Scholz has already launched three aid packages aimed at groups particularly affected by inflation, such as pensioners, the unemployed and students, who are to help them pay their bills this winter.

The French War on Inflation

France, with a deeply entrenched tradition of interventionism, has mobilized hardly any country to stop the rise in prices. So far it has been successful. France is the EU economy with the lowest inflation, which, according to the latest Eurostat data, is 6.2%. Maintaining control over inflation was largely possible thanks to the so-called the energy shield, which the French government launched at the end of 2021. The shield limited the increase in electricity prices to a maximum of 4%. in 2022 and froze the gas price. In 2023, both the increase in gas and electricity prices will be frozen – up to 15%. The cost of the energy shield is estimated at € 30bn this year, and € 45bn in 2023 according to the recently presented budget. 3.5 percent for a year for rent increases. There is also aid targeting the most vulnerable groups, such as increasing social subsidies (including pensions) by 4%. or the payment of the so-called an energy check of € 100 to € 200, which the most modest 12 million households will receive by the end of the year.

Italy cuts contributions

The Italian government, under the leadership of outgoing Prime Minister Mario Draghi, approved a package of emergency measures in the summer to alleviate the effects of high inflation, which stood at 9% in September. The package, which will cost Italians 17 billion euros, is intended to protect companies and families from rising energy prices. In total, the Italian government has reserved as much as EUR 35 billion to mitigate the impact of the very high costs of electricity, gas and gasoline. Of the envisaged amount, as much as 1,200 million will be used to reduce the so-called the tax wedge, i.e. the difference between the employment costs incurred by the employer and what the employee receives. Employee contributions will be reduced by 2%, which is not a real wage increase, but in practice it will mean an effective increase in wages received by employees with an annual income of up to 35,000 PLN. euro. Rome also extended (until mid-October) the 30-cent cut on fuel prices and abolished the so-called system fees, which accounted for up to 20 percent. energy bills. It also lowered – to 5 percent. – VAT on methane for domestic and industrial use. These measures are temporary and run until the end of December. The newly elected government is expected to extend the measures already in place, if necessary.

Britain wanted to go against the tide

The new British prime minister, Liz Truss, won the Conservative party leadership this summer by promising a tax cut, to which all experts were quite skeptical. However, there were those who decided to revive the neo-liberal policies of the 1980s. the largest tax cut proposal in the last 50 years. The plan, worth more than £ 45bn, includes the reversal of an increase in social security contributions approved by the previous government to finance the devastated National Health Service; cancellation of the corporate tax increase from 19 to 25 percent for 2023; abolition of 45 percent personal income tax for the highest incomes and finally lowering the basic income tax rate from 20 to 19 percent. The British Finance Minister’s plan caused panic. Markets immediately sensed that the expected level of debt, with uncontrolled inflation (9.9%) and rising interest rates, is unsustainable. The pound fell to its worst level in almost 40 years, the stock market went mad and debt servicing costs soared. The English Central Bank had to intervene – a few weeks after it announced the end of its quantitative easing policy. Currently, the British government is making unsuccessful attempts to withdraw from the proposed changes, such as the abolition of the tax for the richest. Downing Street’s specific plans for the time of the crisis are not known at the moment.

Spain is also fighting

Spain announced temporary taxation of banks and energy companies, introduced tax breaks on fuel and electricity, as well as changes in personal and corporate income tax.

The Netherlands wants to increase purchasing power

Inflation in September in the Netherlands was 17.1%, the highest level since World War II. The Dutch government has set aside around € 5.4 billion from the 2023 budget to finance measures to ease the gas and electricity bills of low- and middle-income households and has agreed a maximum price with energy companies from November. The government estimates the reduction that the average household will receive on energy bills thanks to an agreement with energy companies will be around € 2,280 per year. This means that the average household will pay around EUR 290 a month for gas and electricity. Suppliers are compensated for the difference between the maximum price set by the government and the market price. In addition, next year by 10 percent. minimum wages and pensions are to increase. Persons falling into the first threshold will also pay lower income tax. In 2023, the rate of the first income tax threshold will be reduced from 37.07 to 36.93 percent. However, the threshold itself will be increased from EUR 69,398 to EUR 73,031.

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