Central bankers are starting to worry as the shutdown of the Persian Gulf – from where a fifth of the world’s oil and seaborne gas is normally shipped – enters the eighth week.
“Every day the conflict continues, the wider the gap between energy supply and demand and the longer the normalisation,” said the ECB’s Christine Lagarde this week. She raised the spectre of going “from prices to rationing”. The International Energy Agency calls it the ‘biggest ever’ energy crisis.
The EU’s response so far suggests otherwise. The bloc has committed just shy of €10 billion to address the spike in diesel, petrol and natural gas prices, according to Euractiv calculations – mostly thanks to large amounts put forward by Berlin and Madrid.
A far smaller cheque this time round
Germany’s ill-advised return to slashing excise duties on fuel is worth €1.6 billion – just shy of 0.05% of GDP. Even accounting for the full impact of the country’s €1,000 tax-free bonus scheme – which Deutsche Bank estimates could cost €6–12 billion in lost taxes – Europe’s crisis response pales in comparison to 2022.
Germany alone disbursed an extra €15 billion between February and April of 2022; Italy spent €13 billion, and France around €12 billion, according to data collected by think tank Bruegel.
The obvious question: what changed between 2022 and today? Have Europe’s ‘nanny states’ finally had enough?
Waiting for Hormuz
Some suggest everyone, including politicians, is simply gambling on the fact that the Strait of Hormuz will be open any day now and the worst can be avoided. The Persian Gulf is too important to stay closed for long, an old argument by analysts goes. “Markets appear to be betting that the disruption will be short-lived,” Lagarde acknowledged.
Politicians, too, could be hedging their bets and distributing aid piecemeal, hoping for a swift end to the latest bout of Trumpflation.
The Tankrabatt lesson – still unlearned
The second argument hinges on institutional and political memory of the 2022 crisis: Europe has just carried out large-scale testing of which interventions work.
Take Germany’s infamous €3.4 billion ‘Tankrabatt’ (a fuel subsidy for drivers) last time round, which everyone but politicians and petrol sellers knew was a bad idea. Now, opponents of similar schemes should have concrete evidence to build their case, but are nonetheless losing the fight.
The 2026 iteration, pushed by Germany’s Social Democrats, junior partner to Chancellor Friedrich Merz’s centre-right Christian Democrats, comes in at just €1.6 billion despite the fuel crisis being arguably much more severe. Meanwhile, other governments across Europe have already adopted generous, undirected subsidies.
No fiscal fuel left in the tank
But the biggest reason for Europe’s lacklustre response to the looming economic crisis caused by the latest Middle East war is that the bloc has no gas left in the tank – literally, because gas storage is at a nine-year low.
When the Covid-19 pandemic hit, government debt in the EU sat at 77.5% of GDP, France and Germany at 58.7% and 98.2% respectively. By the time it was over, EU debt was up 9 percentage points, ditto for Germany, and France was up 14 percentage points, fuelled by a low-interest-rate lending bonanza.
Lagarde said the EU’s 2002 fiscal response “amounted to 1.7% of GDP”, slamming the pandemic-era “expectation” that governments would shield households and firms from any shock.
Now, Europeans could be left holding the bag for real.
In 2026, France has less fiscal space than ever and Q4 2025 debt sat at 116%. Germany is still at 63.5% (and just greenlit a €500 billion extraordinary borrowing push), and EU debt is also above pre-pandemic levels of 81.7%.
Maintaining Europe’s massive deficits is also becoming increasingly expensive as interest rates go up, acting as an additional deterrent.
Southern push to bend the rules again
That, of course, hasn’t stopped Rome from pushing to suspend the EU’s fiscal rules.
“We need to approach this with greater openness, effectiveness and efficiency, and this also applies to the Stability [and Growth] Pact,” Italy’s prime minister Giorgia Meloni said in Cyprus on Thursday.
Both Meloni and Spain’s centre-left Prime Minister Pedro Sanchez are pushing for the crisis response to be exempted from the EU’s fiscal rulebook. “We need to consider a model where the expenditures aren’t counted,” Meloni said.
Stumbling into success
Just as constraints often underpin genuine innovation – art students are taught to work within strict parameters before being given full creative rein – they may also yield a more effective crisis response.
During the 2022 energy shock, governments largely opted to subsidise demand with cheap borrowing, arguably the worst possible approach.
This time, tighter fiscal limits could force more disciplined policymaking, enabling Europe to manage the necessary demand destruction to keep prices in check without squandering billions.
See the original report from Nikolaus J. Kurmayer here.