Untargeted tax cuts swallow 72% of energy relief

European governments have committed €11 billion to energy relief in 2026. More than 72% of that money goes to untargeted measures (Bruegel). Blanket VAT cuts and fuel tax reductions lower prices for everyone, regardless of income. Eurozone finance ministers meeting in Nicosia on May 23 called for relief that is "targeted and temporary" (Cyprus Mail). The spending so far contradicts that promise.

Flat tax cuts save the rich more

The closure of the Strait of Hormuz since late February removed roughly 10.5 million barrels per day from global oil markets. Brent crude peaked at $138 in April and has settled near $110 (EIA, Fortune). European gas prices jumped 56% within weeks (ECCO).

Governments reached for the fastest lever. Spain slashed fuel VAT from 21% to 10%. Germany cut its energy tax on fuel by 14 cents per liter, costing the federal budget €1.6 billion over two months (Bundesregierung). Germany's ifo Institut and the Monopolkommission (the country's competition authority) confirmed the cut actually reached consumers, with pump prices dropping by the full amount. Italy reduced fuel excise duties.

The problem is arithmetic. A flat tax cut saves more money for households that burn more energy: bigger homes, longer commutes, more cars. The IMF found that blanket price subsidies are regressive — meaning they deliver a larger benefit to wealthier households than to poorer ones (IMF). An ETUI analysis showed that many households needing no help received generous transfers, while low-income families still couldn't cover their extra costs (ETUI).

Targeted alternatives exist but remain rare. Greece's Fuel Pass provides €25-60 per month to households earning below €35,000 (Ethnos). France doubled its employer fuel premium to €600 per year, a tax-free payment companies can offer workers, though take-up is voluntary (Le Figaro). Across the EU, only four countries have introduced measures that specifically reach vulnerable households (Bruegel).

Expensive subsidies, empty budgets

These broad tax cuts are colliding with stretched national finances. Germany's deficit has reached 3.7-4.25% of GDP (INSM). France sits at 5.1% (IMF). The number of eurozone countries in an Excessive Deficit Procedure (the EU's formal process for reining in deficits above 3% of GDP) is expected to rise from 10 to 13 this year (Cyprus Mail).

Italy's Prime Minister Meloni pushed to exclude energy spending from deficit calculations, the way defense spending has already been carved out. No other member state backed her publicly (Euronews). The proposal went nowhere, but it captured the political tension. Governments would rather change the accounting than the policy.

Nine days in June

Spain's electricity and gas VAT cuts expire June 1, with price jumps of 9.9% and 11.7% expected (Spain in English). Italy's fuel tax cut expires June 6. On June 11, the ECB (the European Central Bank, which sets interest rates for the 20-country eurozone) decides on rates, and investors expect a hike (CNBC). Germany's cut runs until June 30.

The ECB cannot produce more oil by raising rates, but eurozone inflation at 3% against a 2% target makes standing still difficult (ECB). If subsidies expire and borrowing costs rise at the same time, lower-income households will pay more for energy at home and more for their mortgages at the bank. The Eurogroup agreed on principles in Nicosia but produced no mechanism to coordinate the exit. Each country decides alone when to pull its subsidies. The first deadline is nine days away.