The EU warns capitals of various countries: Do not let the energy crisis evolve into a financial crisis.

European Union officials are urging governments across member states to avoid introducing overly generous subsidy policies to offset the risk of energy prices surging sharply, and are warning that the shocks triggered by the Iran war may evolve into a fiscal crisis.

Insiders say that during consultations with member states, the European Commission has insisted that the relevant energy subsidies, tax cuts, and price-cap measures must include limits on both the time period and the scope of application. Brussels is trying to avoid repeating the 2022 energy crisis—when that crisis sent inflation out of control and caused a sharp surge in fiscal deficits.

EU Energy Commissioner Dan Jørgensen said: “This is the Commission’s unified position. Volatility in a single economic domain can spread and affect society as a whole.”

Many countries, including Italy, Poland, and Spain, have already lowered fuel taxes, while other countries have called for relaxing regulations related to EU state aid. Italian authorities in Rome have also pushed for the EU to loosen fiscal constraints, giving each country more room to adjust policies.

Jørgensen said the European Commission is “providing technical guidance and assistance to help countries design the policy tools and accompanying measures they need within existing fiscal space.”

After the United States launched strikes on Iran, European oil and gas prices rose by roughly 60%, and the market has started to worry about potential supply shortages of diesel and aviation fuel. He said the conflict “unfortunately carries a very high risk of pushing up inflation and triggering a series of negative knock-on effects.”

A senior official said Brussels is currently consulting with finance ministries in each country, and that the European Commission is calling on each country to maintain coordination, exercise caution, and act with restraint when rolling out measures to ease pressure from energy prices.

Officials are concerned that the conflict could become the third economic crisis the EU faces within six years. Previously, the COVID-19 pandemic and Russia’s full-scale invasion of Ukraine in 2022 both produced large-scale stimulus plans, driving up the size of public debt in each country.

The latest figures available show that the ratio of total EU government debt to gross domestic product has risen from 77.8% at the end of 2019 to 82.1% in the third quarter of last year.

Last month, European Central Bank President Christine Lagarde said: “Targeted policies can reduce energy demand and subsidize low-income households, thereby stabilizing and resolving the shock.” But she also warned that broad, open-ended universal measures could backfire—over-stimulating demand and worsening inflation. She urged policymakers to implement short-term, targeted, tailored intervention measures.

Vardis Dombrovskis, the EU economic commissioner, told each country’s finance ministers that only short-term emergency measures with unified logic can be implemented. He emphasized that with the COVID crisis and the Ukraine crisis layered on top of each other, and with defense spending surging sharply in many countries since 2022, many countries’ fiscal buffers have already been significantly depleted, and excessive spending will create serious fiscal risks.

Dombrovskis said at the end of last month: “We have always stressed that, given limited current fiscal adjustment room, each member state’s policies must adhere to two principles: effectiveness in the short term and precision targeting.”

Last week, Italy’s finance minister Giancarlo Giorgetti said plainly that the EU will inevitably loosen the rules on deficit control—current rules require that each country’s fiscal deficit must not exceed 3% of GDP.

Previously, Italy had extended a 20% temporary fuel consumption tax to May 1. According to data released by the country’s official statistics agency, Italy’s 2025 fiscal deficit as a share of GDP is 3.1%.

Giorgetti said: “If there is no turnaround in the situation, the EU level will inevitably need to hold related consultations.”

The finance ministers of five countries—Germany, Spain, Italy, Portugal, and Austria—sent a joint letter to the EU on Friday proposing an EU-wide windfall tax on energy companies, aiming to ease the burden on European economies and the public.

The letter was released by Carlos Cuervo, Spain’s finance minister. It cited a 2022 precedent: at the time, the Russia-Ukraine conflict triggered a surge in natural gas prices, and the EU had set revenue caps for electricity companies.

In the letter, the finance ministers said: “Given the current market imbalances combined with fiscal pressure, the European Commission should roll out as soon as possible an EU-wide set of similar collection mechanisms.”

Poland sharply lowered fuel value-added tax and consumption tax, with monthly tax revenue losses of 1.6 billion zloty (equivalent to 370 million euros). The country’s government plans to plug the gap by imposing a windfall tax on the profits of energy companies, but specific details of this new tax have not yet been published.

Related officials said that for governments in countries that plan to introduce subsidies and other state-aid policies to support industries affected by the shocks, the EU has issued a reminder: such measures must still comply with EU regulations aimed at driving a green economic transition and reducing dependence on fossil energy.

Jørgensen said: “Under crises like this, sometimes we have to provide subsidies and support to areas that we would never support in ordinary circumstances, but this can only be a short-term measure. Otherwise, the public will face difficulties heating their homes, and companies will also have to halt production and operations.”

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Responsible editor: Li Zhaofu