As the Strait of Hormuz crisis tightens global fuel supplies, European governments are once again resorting to broad energy subsidies that risk prolonging the continent's energy crisis, according to Judith Arnal, a state economist in Spain. Writing for European Pulse, Arnal warns that blanket tax cuts and price caps—adopted by several member states—are undermining the price signals needed to drive demand reduction and fiscal discipline.
Pierre Wunsch, governor of the National Bank of Belgium, put it bluntly: “We must primarily reduce demand now.” Broad support measures, he cautioned, would be like “pouring gasoline” on the problem. Yet most governments are repeating the errors of 2022 with striking precision, and in some cases making them worse.
Failing the ECB's Triple-T Test
A comparative assessment of fiscal measures in Germany, France, Italy, Spain, Poland, and Hungary against the European Central Bank's triple-T framework—targeted, tailored, temporary—reveals that not a single member state fully satisfies it. The logic is straightforward: support those who cannot absorb the shock, preserve the price signal that drives demand adjustment, and ensure measures expire before hardening into permanent entitlements.
“Every euro spent suppressing the price signal is a euro spent prolonging the crisis,” Arnal writes. The hierarchy of failure is clear. At the bottom sit Hungary and Poland, whose direct price caps on petrol and diesel suppress the price signal entirely, benefit high-consumption households most, and create secondary distortions—such as Hungary's export ban on crude and refined products and Poland's fuel tourism.
Spain, Italy, and Germany occupy the next rung, all deploying broad VAT or excise duty cuts that fail targeting and tailoring simultaneously, with benefits that grow with consumption. The European Commission has already questioned whether the Spanish and Polish VAT cuts on motor fuels comply with the VAT Directive.
Yet not all measures are poorly designed. Spain's reinforced thermal voucher—a direct income transfer to vulnerable households—passes all three tests. Italy's sectoral tax credits for transport, fisheries, and agriculture do not intervene directly in prices and target exposed sectors, though they remain tied to fuel consumption, blunting the incentive to adjust demand.
France stands out as the member state that has come closest to the ECB benchmark. Paris chose not to intervene in pump prices despite transport-sector protests, relying instead on administrative tools—500 inspections at petrol stations to detect abusive margins, liquidity support through Bpifrance, and deferrals of tax and social security obligations. Its €70 million in budgetary support for transport, agriculture, and fisheries is the weakest link, still tied to fuel consumption, but the French approach is at least coherent.
European Levy on Extraordinary Profits
Beyond national measures, five governments—Austria, Germany, Italy, Portugal, and Spain—sent a joint letter to Commissioner Wopke Hoekstra on 3 April, urging the Commission to develop a European levy on extraordinary profits of energy companies, echoing the solidarity contribution adopted under Regulation 2022/1854. But the 2022 levy got two things wrong: it taxed the wrong base and let member states opt out or design national equivalents with no binding standard, fracturing the single market. Spain, for instance, taxed net turnover, which has nothing to do with windfall gains.
Any new instrument must fall on genuine economic profit. And even then, a windfall levy should not become a reflex—as the sector's own tax bases broaden with higher prices, revenues will rise without one. The Caspian Transit Investment Key to Europe's Energy Diversification offers a longer-term structural alternative to ad hoc levies.
Arnal's prescription is clear: governments must stop treating the price signal as the enemy. Blanket tax cuts and price caps should be replaced immediately with direct income transfers for vulnerable households, liquidity support, and non-earmarked tax credits for exposed sectors. Emergency measures should expire not on calendar dates that politicians can quietly extend, but on predefined market triggers that depoliticise the withdrawal decision. The Commission should establish an ex ante notification and assessment framework, grounded in the ECB's triple-T criteria, so that member states understand the aggregate impact of their measures before adoption, not after.
The alternative—another round of untargeted subsidies that delay adjustment and deepen fiscal holes—is not crisis management. It is crisis prolongation. As the EU leaders gather in Cyprus to tackle the Hormuz crisis, the stakes for coherent energy policy have never been higher.
