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3. Italy
Italy’s government suspended some taxes on fuel, as well as VAT on gas for households and businesses. Grid fees for gas were reduced and suspended for electricity.
To support incomes, the state expanded energy subsidies for those in need. Italy paid citizens a one-time lump sum of 150 to 200 euros depending on income, reduced social security contributions, brought forward pension increases and increased them between October and December
pensions paid in 2022 by two percent.
The inflation rate in Italy in 2022 was 8.7 percent, as high as in Germany and thus around the euro average. At its peak, it rose to 12.6 percent in Italy and fell to 8.2 percent by March 2023.
4. Spain – inflation rate 3.1 percent
Spain reduced taxes and duties on electricity, natural gas, pellets, briquettes, firewood – and most recently
also on staple foods. The most common natural gas tariff, which applies to 40 percent of all households, has been capped. In addition, Spain capped the gas price for electricity generation, which was possible because Spain is largely decoupled from the rest of the European gas market.
The government capped rent increases at 2 percent a year, reduced public transport fares and offered a fuel rebate of 20 cents per liter.
Income-enhancing measures include a 15 percent increase in basic income support and
Basic pension, a one-time allowance of 200 euros for low-income families and a payment in
Amount of 400 euros to scholarship holders.
The inflation rate in Spain in 2022 was 8.4 percent, the euro average. Inflation peaked in Spain at 9.0 percent. Since the fall, it has declined significantly. In March, the inflation rate halved from six to 3.1 percent.
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Netherlands
The government of the fifth-largest economy in the euro zone lowered a levy on electricity as early as October 2021, and later taxes on petrol and diesel, as well as VAT on energy. In early 2023, those tax cuts were replaced by price caps on electricity and gas.
At the peak of energy price inflation at the end of 2022, private households and small companies received an energy cost subsidy of 190 euros. The government has planned targeted measures for 2023. This includes a one-off payment of 1300 euros for low-income families and an increase in the sickness benefit subsidy by 412 euros.
In the Netherlands, the inflation rate in 2022 was above average at 11.6 percent. But this is also due to the fact that in the Netherlands only new contracts are included in the price statistics for electricity and gas prices.
read too
Inflation: How useful are government interventions?
The research institutes are rather skeptical about many government interventions. “Many of these measures are not targeted; they favor households across the income spectrum,” they write. “All things considered, measured inflation has, in and of itself, been temporarily reduced.” However, two effects counteracted this. Because energy prices were artificially lowered, “total European energy demand was kept up, which may have slowed down the fall in world market prices.” A lot of direct help for households and companies would have “ensured a higher overall demand, which in turn has the effect of increasing prices.”
The researchers point to estimates by the ECB that the government measures would reduce the inflation rate by 0.3 percentage points in 2023 and increase it by 0.5 percentage points in the coming year. However, it is difficult to calculate the effects of inflation because of the complex impact channels. “It is also uncertain because the scope of important measures depends on the level of energy prices, which can change significantly.”
read too
In Europe, prices are rising with historically high inflation rates. The European Central Bank (ECB) is fighting back with unprecedented rate hikes. But governments are also trying to alleviate inflation by intervening in prices.
As a result, there are large differences in inflation in the euro zone. It is currently between 3.1 percent in Spain and over 15 percent in the Baltic countries. Germany is in the middle with 7.8 percent.
Can politics lower inflation sustainably? Here is an overview of what the governments of the five largest countries in the euro zone have done to stop rising prices.
What can politicians do about inflation? For almost two years, prices in Europe have been rising at a rapid pace, burdening many millions of households. Initially, delivery bottlenecks as a result of the Corona crisis drove up prices. After Corona, great demand met limited supply. And then energy prices shot up after Russia’s invasion of Ukraine. In the euro zone, the inflation rate shot up to 10.6 percent in autumn, the highest level since the introduction of the euro.
The European Central Bank is fighting back with what are also the sharpest interest rate hikes in its history. In addition, governments are trying to mitigate the consequences for consumers and lower inflation rates by directly intervening in prices.
These interventions are one reason why the Inflation rates within the euro zone are different. They currently range from 3.1 percent in Spain in the west to over 15 percent in the Baltic States on the border with Russia.
In a joint report, four major economic research institutes have examined these government interventions. Here’s an overview of what the governments of the five largest euro-zone economies have done to combat inflation – and what economists think.
The interventions are divided into two categories:
- Pricing measures: They target prices directly, for example by lowering taxes on products or price caps made possible by subsidies. Disadvantage. This impairs the steering function of prices and increases scarcity.
- income measures. They boost household income and corporate profits. Price signals are not disrupted, but inflation tends to be amplified with the additional demand. Unlike price interventions, they can be targeted to specific groups
become.
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1. Germany – inflation rate 7.8 percent
In Germany, the government reduced taxes on fuel (tank discount) from June to August 2022 and introduced the subsidized 9-euro ticket for local and regional transport. It also eliminated the renewable energy levy (EEG) as a surcharge on the electricity price. Value added tax on gas deliveries was reduced from 19 percent to 7 percent from October 2022.
Private households received one-time direct state aid. First, employed persons received 300 euros gross, and 100 euros were paid for each child. Later, pensioners received 300 euros and students 200 euros. Recipients of housing benefit and training grants (Bafög) receive a heating subsidy.
With the third relief package in autumn 2022, the state took over the down payment for gas heating or district heating for all households in December. The gas and electricity price brakes have been in effect since the beginning of 2023. The state pays the difference between the tariffs and the price limits set by the state for 80 percent of previous consumption. This is valid until the end of 2023 and can be extended until April 2024. Hardship funds support households that heat with oil and wood pellets.
In Germany, consumer prices rose by 8.7 percent in 2022 as a whole, at a rate similar to that in the entire euro area at 8.4 percent.
Inflation in Germany will peak in October 2022 at 11.6 percent. By March it had fallen to 7.8 percent. In the euro zone, the high was also in October at 10.6 percent. The rate fell to 6.9 percent by March.
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2. France – inflation rate 6.6 percent
France limited the increase in household electricity tariffs to four percent until February 2023. Since then, there has been a limit of plus 15 percent, which also includes small companies and communities. Household gas prices were frozen until January 2023 at the October 2021 level, i.e. before the Ukraine war. The state compensates energy suppliers for lost income.
From April to the end of 2022, a tank discount of up to 30 cents per liter of fuel applied. Low-income people received a one-time payment of 100 euros, while low-income households received additional energy vouchers of up to 300 euros. Until the end of 2022, energy-intensive companies received subsidies for up to 50 percent of the increased energy costs as well as discounted loans. Added to this were tax breaks and subsidies for some sectors.
In France, inflation for 2022 as a whole was 5.9 percent, well below the euro average of 8.4 percent. Energy made a much smaller contribution to inflation and, as a result, so did industrial goods and food, for which energy is important for production. Inflation in France peaked at 7.3 percent. It is also declining slightly, but at 6.6 percent in March it was still higher than the average for 2022.
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3. Italy
Italy’s government suspended some taxes on fuel, as well as VAT on gas for households and businesses. Grid fees for gas were reduced and suspended for electricity.
To support incomes, the state expanded energy subsidies for those in need. Italy paid citizens a one-time lump sum of 150 to 200 euros depending on income, reduced social security contributions, brought forward pension increases and increased them between October and December
pensions paid in 2022 by two percent.
The inflation rate in Italy in 2022 was 8.7 percent, as high as in Germany and thus around the euro average. At its peak, it rose to 12.6 percent in Italy and fell to 8.2 percent by March 2023.
4. Spain – inflation rate 3.1 percent
Spain reduced taxes and duties on electricity, natural gas, pellets, briquettes, firewood – and most recently
also on staple foods. The most common natural gas tariff, which applies to 40 percent of all households, has been capped. In addition, Spain capped the gas price for electricity generation, which was possible because Spain is largely decoupled from the rest of the European gas market.
The government capped rent increases at 2 percent a year, reduced public transport fares and offered a fuel rebate of 20 cents per liter.
Income-enhancing measures include a 15 percent increase in basic income support and
Basic pension, a one-time allowance of 200 euros for low-income families and a payment in
Amount of 400 euros to scholarship holders.
The inflation rate in Spain in 2022 was 8.4 percent, the euro average. Inflation peaked in Spain at 9.0 percent. Since the fall, it has declined significantly. In March, the inflation rate halved from six to 3.1 percent.
read too
Netherlands
The government of the fifth-largest economy in the euro zone lowered a levy on electricity as early as October 2021, and later taxes on petrol and diesel, as well as VAT on energy. In early 2023, those tax cuts were replaced by price caps on electricity and gas.
At the peak of energy price inflation at the end of 2022, private households and small companies received an energy cost subsidy of 190 euros. The government has planned targeted measures for 2023. This includes a one-off payment of 1300 euros for low-income families and an increase in the sickness benefit subsidy by 412 euros.
In the Netherlands, the inflation rate in 2022 was above average at 11.6 percent. But this is also due to the fact that in the Netherlands only new contracts are included in the price statistics for electricity and gas prices.
read too
Inflation: How useful are government interventions?
The research institutes are rather skeptical about many government interventions. “Many of these measures are not targeted; they favor households across the income spectrum,” they write. “All things considered, measured inflation has, in and of itself, been temporarily reduced.” However, two effects counteracted this. Because energy prices were artificially lowered, “total European energy demand was kept up, which may have slowed down the fall in world market prices.” A lot of direct help for households and companies would have “ensured a higher overall demand, which in turn has the effect of increasing prices.”
The researchers point to estimates by the ECB that the government measures would reduce the inflation rate by 0.3 percentage points in 2023 and increase it by 0.5 percentage points in the coming year. However, it is difficult to calculate the effects of inflation because of the complex impact channels. “It is also uncertain because the scope of important measures depends on the level of energy prices, which can change significantly.”
read too