European Central: Why Petrol Costs So Much In Italy
Anton Petrus
Whether or not Putin wants to call his “special military operation” an invasion of Ukraine, it is clear that economic sanctions on Russia have made energy significantly more expensive in Europe. Many European countries depend heavily on Russian energy, including Italy. While European countries and the US are not getting involved by sending troops to fight Putin directly in Ukraine, they instead issued numerous economic sanctions. One of the most important ones is no longer buying Russian oil, consequentially raising prices for European consumers. Italy however cannot entirely blame its energy prices on these sanctions. Instead, Italy’s high petrol prices start decades ago with Mussolini.
Mussolini is a sore spot in Italy’s history for numerous reasons but regarding energy, Mussolini started Italy’s bad habit of increasing taxes on petrol in order to earn extra revenue for the government. Mussolini first imposed an excise tax of 1.9 lire on petrol in order to fund his war in Ethiopia. This was then followed by consequential excise taxes on gasoline; in 1956 14 lire were added for the Suez financial crisis, 10 lire in 1965 for the reconstruction of the Vajont Dam in Italy, 10 euros for the flooding of Florence, 10 lire in 1968 for the earthquake in Belize, 99 lire in 1976 for the earthquake in Friuli-Venezia-Giulia, 75 lire in 1980 for the earthquake in Irpinia, 205 lire in 1982 for the UN mission in Lebanon, 22 lire for the UN mission in Bosnia and Hercegovina, 0,02 euros in 2004 to renew train contracts after workers negotiated higher wages, 0,005 euros in 2005 to purchase eco-friendly buses, 0,005 euros in 2009 for the earthquake in Aquila, between 0,0055-71 euros in 2011 for the finance of culture, 0,04 euros in 2011 for migrants fleeing the Libyan crisis, 0,0089 euros in 2011 for flooding in the regions of Liguria and Toscana, 0,082 euros for the decree “Save Italy”, 0,024 euros in 2012 for the earthquakes in Emilia-Romagna, and finally 0,0024 euros in 2014 for the decree “Nuova Sabatini”. The only two times any of these increases were reduced was in 2012 when 0,005 euros for the earthquakes in Aquila was removed, and the excise tax for the UN mission in Bosnia and Hercegovina had an end date in 1996.
This has become a campaign issue in Italy, much to the fury of Italians that they continue to pay these taxes yet are rarely cut after fulfilling their intended purpose. The problem is, even though Matteo Salvini campaigned in 2018 on cutting excise taxes on gasoline, he failed to do so and they still remain to this day. While this is true, the problem is that these taxes were never cut from petrol, causing Italy to be one of the most expensive countries for petrol in the European Union. This is a problem considering Italy’s economy has stagnated in comparison with other EU member states and has a median hourly wage lower than the average of the EU and Eurozone. This leaves consumers with less money to spend on other goods and has a negative impact on consumer demand which helps drive economic growth.
Italy’s economic growth in 2021 was 6.4 percent, higher than that of the average in the EU meaning a much quicker recovery from the fall in GDP during 2020 in comparison to previous economic slowdowns such as 2008, which Italy’s GDP per Capita has yet to reach what it was 14 years ago. However, an increase in energy prices risks future economic growth of the country. In order to soften the economic blow of higher gas prices, Italy’s government decided to cut taxes on petrol by 30 cents a liter. For Americans to understand this savings is the equivalent to a $1.25 savings per gallon of gasoline. This measure will be in effect for 30 days starting from March 22nd. This is an important step the government took as energy prices are very important when it comes to economic growth. Before the cut in energy prices, it was estimated by ISTAT (Italy’s national bureau of statistics) that the country’s forecasted economic growth of 4.4 percent would drop to 3.7 percent of the GDP. It is always best to maximize economic growth, and this is particularly true when consumers are dealing with high inflation. Ideally workers could hope that strong economic growth will be followed by an increase in wages in order to keep up with an increase in prices, but this is unlikely to occur if economic growth is lower than expected and companies see tighter margins.
Ideally the decrease in taxes would be more permanent, but this may be difficult to do currently as Italy battles the second highest debt to GDP ratio in Europe, and one of the highest worldwide. This leaves Italy between a rock and a hard place as it needs to be able to encourage economic growth yet is limited due to the need for taxes in order to lower the debt to GDP ratio. Italy is obligated by its membership in the European Union to lower its debt-to-GDP ratio. Member states are supposed to maintain a national public debt equal to 60 percent of their national GDP or lower. However, many nations in the EU struggle with this, particularly those in Western Europe compared to newer members in Eastern and Central Europe that are newer members and have seen quicker annual economic growth.
One potential avenue for further lowering energy prices is drilling in the Adriatic Sea. In January of this year drilling in the Adriatic was approved by the European Court of Justice, the European Union’s highest court guaranteeing Italy’s right to extract energy. The problem however is not everyone is happy with this result. Puglia, a southern region of Italy that people may refer to as the heel of Italy was against the national government drilling in the Adriatic. This is because tourism is important to Puglia and there are concerns over the possibility of an oil spill which would devastate the tourist industry. There is also frustration that the decision from the Court of Justice appears to promote the continued use of fossil fuels while environmentalists are trying to support renewable energy. The problem however is that energy prices are impacting Italy and Europe now meanwhile renewable energy cannot offer immediate price relief. Economic growth is particularly important for Italy as it has had slower economic growth than other EU member states and has been paying for it. In particular, Italy has seen the young continue to leave and work in other member states which they have the legal right to do so through the freedom of movement of workers. There are no simple decisions that Italy can make but it is clear that Italy needs to be less energy dependent on nations like Russia.
