Energy support measures could challenge France, Britain's finances, Fitch says

By Yoruk Bahceli

LONDON, March 6 (Reuters) - Fitch Ratings is watching whether European governments will need to roll out support measures to tackle higher energy prices, a move that could add to fiscal pressures in the likes of France and Britain, a senior analyst told Reuters on Friday.

Oil and gas prices have surged this week as war in the Middle East stoked fears among policymakers and financial markets that inflation, which surged following Russia's invasion of Ukraine, may rise again.

Whether they provide support will depend on how long the war lasts and whether energy prices rise further. So far, Spain is studying potential support measures for consumers and businesses, while Italy is ready to hike taxes on companies that benefit unduly from higher gas prices.

"Governments are much more sensitive now to the issue of energy prices and could possibly react much sooner", Federico Barriga-Salazar, head of Western Europe sovereigns at Fitch Ratings, told Reuters, citing a willingness to talk about support at an early stage.

"The point is that any measure that is taken on the fiscal side will have a cost. If it's very temporary, the costs do not really add up, especially in the large economies."

Temporary relief on energy taxes or oil prices, which have risen less than gas, would have more limited impact but additional programmes to support the industrial sector and general, rather than targeted measures, would cost more, he said.

Even the more limited measures could be challenging for those countries already starting with a weaker fiscal position, he said, referring to France, Belgium and Britain given their high deficits and challenging debt trajectories.

For them, fiscal consolidation plans have to be "more consistent over time to really tackle that and anything that adds to spending pressures complicates this."

France's debt is nearly 120% of output, Britain's is close to 100%.

Britain's finance minister said this week it was hard to predict when a windfall tax on energy companies' profits would come to an end, but was still committed to removing it. Germany has said it will refrain from lowering taxes on petrol.

If governments do provide support, Fitch will watch whether they take any offsetting measures to cover some of the costs, Barriga-Salazar added.

For now, the biggest risk is the impact of rising energy prices on inflation and growth, he said.