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Euro zone to discuss economic hit from soaring energy prices By Reuters

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© Reuters. FILE PHOTO – The European Central Bank logo, Frankfurt, Germany. January 23, 2020. REUTERS/Ralph Orlowski

By Jan Strupczewski

BRUSSELS (Reuters) – Euro zone finance ministers will discuss soaring energy prices on Monday, concerned they could slow economic recovery, impact on investment decisions and disproportionately hit the poorest, a European Commission note showed.

Prepared for ministers’ meetings in Luxembourg, the note stated however that any policy reaction must first establish how permanent or temporary the increase in energy price.

European Central Bank and most euro-zone governments believe that the higher electricity, gas and oil prices will decrease in 2022.

Ministers will have to discuss this issue in detail and will share their best practices as they attempt to solve the problem. They will need to create budgets for 2022 that are heavily affected by rising energy prices.

The Commission’s note was seen by Reuters. It stated that “the current increase in energy prices is already affecting economies” and suggested there should be a discussion about the effect of increased prices on national budgets. The Commission noted that whether an issue is considered primarily a supply problem or one of demand will impact the types of responses.

The report stated, “Governments have many policy options. They can tackle supply (investment), or demand (subsides and taxation) and also broaden competition and regulate aspects.

Low storage levels and outages, as well as high demand, have caused European benchmark gas prices to soar by over 300% in this year. This is due to the recovery of COVID-19, which has dragged up wholesale electricity costs.

From an economic standpoint, rising energy prices can slow recovery. According to the Commission, assumptions about electricity, gas, and overall prices play a crucial role in budgetary planning, especially in light of recent volatility.

When the EU leaders meet again on October 21-22, they will be discussing rising prices.

According to the Commission, “The current state of affairs points out the need for greater investment in renewable energies as countries transition away fossil fuels. Also, it is important that we implement green reforms.”

The Commission noted that “there is a danger that higher energy costs will have unintended consequences on low-income households and elderly people (energy poverty),” which was especially concerning during the winter months.

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