Both the ECB and especially the governments of the EU member states must deal with two serious issues after the further strengthening of inflation in the Eurozone.
- The pressure that is already being exerted and will continue to be exerted most strongly on the actual disposable income of households.
- In weakening the competitiveness of companies affected by imported inflation (USA, Russia).
The governments of the Eurozone member states should implement all those necessary policies to reduce the consequences and fully protect households and businesses from an international phenomenon.
The adjustment should concern a new income policy on the issue of minimum wages in the new conditions under development.
Energy costs are what keep fueling inflation. The EU has higher energy costs than the US. A large percentage of the 27 member states due to the increased energy costs have a problem with their trade balance, the competitiveness of their industries, the finances of small and medium enterprises and very small family businesses and of course the household budget.
On the other hand, 37% of the total funds of the European Recovery Fund will be allocated to green energy in the EU. a green energy policy that is becoming very expensive now.
The increases in electricity tariffs will certainly provoke dynamic reactions from the public opinion of the member countries. We should not miss the action of the yellow vest movement that took part in France after the decision of the French government to impose an additional environmental tax on fuel. In the end, she took back her decision and proceeded with annual benefits of € 11 billion.
Increases in energy costs foreshadow a major political problem for member governments.
Appropriate fiscal adjustment to increased energy costs
Given the increases in international gas prices, the rising cost of electricity imports, governments need to implement a new energy policy mix.
- Member countries that have available factories and mineral reserves in lignite to produce their electricity respectively, should reactivate them until the cost of energy is normalized to normal prices. Such a policy will reduce the EU’s growing dependence on energy imports.
- Natural gas selected as a transitional fuel to achieve the green energy goal is no longer profitable. The only option is to generate electricity from both lignite and nuclear power plants.
- The production of electricity from RES is a long-term solution. Member States’ markets should be “cleansed” of electricity producers using RES from any type of indirect or direct subsidy. At the same time, the large producers of RES electricity should be stopped in various ways. In this way, mergers and acquisitions will be created across the market to create even larger shapes.
- Investments and their corresponding rate in energy storage systems without which RES cannot be efficient should be increased.
- Electricity producers and providers who have structural problems and are pressured by competition should solve them immediately with the appropriate framework to be imposed by governments.
- Increase the effectiveness of regulators with the appropriate institutional framework to make competition work for the benefit of the economy and consumers.
The implementation of the above policies increases the effectiveness of any income policy and the development of the economy.
The factor that can cause operating problems
The factor that in the course of time can improve or worsen everything in the prevailing conditions is the evolution of the Covid-19 pandemic. The situation begins and is defined as worse to much worse for the fall of 2021 compared to the corresponding period of 2020.
Most EU governments are pursuing prudent policies to keep their economies operating as smoothly as possible despite the Covid-19 pandemic.
If governments succeed in controlling the pandemic, the normal functioning of their economies will be optimized by further fueling growth and bringing to action dynamic growth.
But if they fail to control the pandemic, they will be forced to apply stricter restrictive measures, limiting any development.
The evolution of the pandemic has a direct impact on the economic and social situation. Accelerates the digitization of the economy in favor of Big Tech, widening economic and social inequalities, increasing the degree of teleworking etc.