Europe unveils energy relief amidst fiscal flexibility push by Cyprus and Greece
"European governments are rolling out widespread tax cuts, fuel subsidies, and price caps to protect households and businesses from an estimated €100 billion surge in fossil fuel import costs. Spearheaded by Greece and Cyprus, member states are simultaneously pressing the European Commission for expanded fiscal flexibility to sustain vital national relief measures without violating EU budgetary rules."
EU Directive 2019/790 Article 15 Attribution • Verified Energy Document
Across Europe, governments are implementing a range of relief measures, including tax cuts and subsidies, to alleviate the severe economic pressure on households and businesses. This is in response to a protracted energy crisis exacerbated by geopolitical instability in the Middle East, which is also straining national budgets.
Figures compiled by Phileleftheros estimate the additional cost of EU fossil fuel imports at approximately €100 billion. This substantial expense has spurred governments to predominantly introduce indirect tax cuts to lower fuel prices. Beyond fuel, several nations are also addressing electricity prices, with some implementing or contemplating taxes on energy sector windfall profits.
Against this challenging economic backdrop, a coalition of EU member states, spearheaded by Greece and actively supported by Cyprus, is advocating for the European Commission to provide greater fiscal flexibility. This aims to secure exemptions that would grant national governments more scope to fund crucial support measures. This debate intensifies as escalating energy costs increasingly threaten European competitiveness. The commission has previously allowed limited fiscal flexibility for spending directed at enhancing energy resilience and reducing reliance on imported fossil fuels, albeit within strict parameters of the EU's fiscal framework. Further discussions on fiscal flexibility and a unified economic strategy are anticipated to be a central focus at the upcoming EU summit on October 15-16.
How European countries are responding
Cyprus: The government has extended zero VAT on a selection of essential goods, including fresh fruit, vegetables, milk, baby and adult nappies, and feminine hygiene products, throughout 2027. A similar zero-VAT initiative, which previously covered meat, fish, and poultry, now includes bread, dairy products, coffee, sugar, and baby food from October 12, 2026, until May 31, 2027. Excise duty on heating oil will decrease from 7.4 cents to 2.1 cents per litre between November 1, 2026, and April 30, 2027. Finance Minister Makis Keravnos has indicated that Cyprus is seeking further tax reduction flexibility from the European Commission, arguing that fiscally robust, low-debt countries should have greater autonomy to support their economies during crises. Electricity subsidies for vulnerable consumers (tariff category 08) and commercial users (category 10) will continue throughout 2027, covering 100% of the price increase for 23,300 households and up to 85% for approximately 82,500 businesses. VAT on residential photovoltaic systems has been reduced from 19% to 9%. Additionally, the government has announced a one-off €200 payment for 53,511 vulnerable recipients and enhanced support for 10,500 households (around 24,000 individuals) in mountain communities.
Greece: Athens is implementing a strategy that combines direct subsidies with measures designed to limit retail fuel prices. Prime Minister Kyriakos Mitsotakis has written to European Commission President Ursula von der Leyen, requesting increased flexibility for temporary government support schemes under EU fiscal rules. Heating oil will receive joint support from the government and refineries, aiming to keep its starting price below €1.75 per litre from October 15. The state subsidy on road diesel has also been raised from 10 cents to 15 cents per litre for the first half of October. Combined with refinery discounts, the total pump price reduction for road diesel is expected to be around 20 cents per litre.
Germany: The federal government and the Länder have agreed on a package to lower fuel prices. Taxes on petrol and diesel have been cut by 17 cents per litre, including VAT, effective October 1. The fiscal impact of this measure is estimated at €2.5 billion, and the Finance Ministry is exploring whether some of these costs could be offset by taxing excess profits in the energy sector.
France: With inflation at 3% and food prices up by 9.9%, Paris has allocated €450 million for targeted fuel payments of €100 to long-distance commuters and energy vouchers for 5.5 million vulnerable households. Measures also include a 15-cent-per-litre subsidy for diesel used by farmers.
Spain: Madrid continues to cap the price of natural gas used for electricity generation as part of its strategy to control household power bills. Public transport subsidies, including free commuter rail travel, have also been extended to encourage reduced car usage.
Portugal: The government is combining a reduction in VAT on electricity with direct financial aid for farmers and small and medium-sized businesses grappling with increased fertiliser and fuel costs.
Italy: Rome has leveraged EU fiscal flexibility to implement energy tax cuts benefiting both industrial and household consumers. Its support program for agricultural businesses, which are affected by higher fuel and fertiliser costs, and for fishing and aquaculture companies facing elevated fuel bills, will remain in effect until the end of the year.
Denmark and Sweden: Despite diesel prices exceeding €2.50 per litre, among the highest in the EU, these two nations have opted against broad-based tax cuts. Instead, they are focusing on targeted heating support for lower-income households and accelerating investments in green electricity infrastructure.
Finland: Helsinki has introduced temporary tax deductions for workers' travel expenses and increased its support for agricultural businesses.
Poland and Czechia: Both countries have imposed caps on electricity and natural gas prices for households and are providing state guarantees to energy-intensive industries. Poland has additionally implemented a 60% tax on excess revenues earned by oil companies between March and December 2026.
Hungary: The government will provide a monthly payment of €60 to owners of approximately one million diesel vehicles until the end of the year to mitigate the impact of higher fuel prices.
Bulgaria and Romania: These nations are concentrating on direct compensation through electricity bills, with funding sourced from taxes levied on the excess profits of power producers.
Malta keeps energy and fuel prices frozen
Malta continues to absorb international price increases through direct state subsidies to the national energy provider, maintaining frozen electricity and fuel prices for consumers. Similarly, the Baltic states — Estonia, Latvia, and Lithuania — are utilizing automatic bill subsidies that trigger when energy prices surpass predetermined thresholds, aiming to combat persistent high inflation.
Commission urges governments to curb energy use
Concurrently, the European Commission is urging member states to sustain efforts that bolster energy supply or reduce gas and electricity demand, as concerns about winter energy availability persist. This call was a key discussion point among EU energy ministers during their informal meeting in Dublin on September 29. Commissioner Dan Jørgensen has advised national capitals to retain these measures as long as needed. While the commission currently favors voluntary demand adjustments over mandatory restrictions, strategies from the 2022 energy crisis are being re-evaluated to prepare for potential ongoing pressures on Europe's energy supplies and prices.