While the electricity and gas payments on account for German consumers sometimes multiply, French households hardly notice the price gallop on the energy markets.

The reason for this is the government's bold intervention in pricing.

The state-regulated gas tariff, which around a quarter of households have and to which many market tariffs are indexed, has been frozen since October 2021.

The government has also capped the increase in the price of the regulated electricity tariff to 4 percent this year.

The state bears the resulting losses for the energy suppliers.

Niklas Zaboji

Economic correspondent in Paris

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Hard to digest for market economists at first glance and counterproductive in view of the ongoing energy saving efforts in France, the "price tag" called "bouclier tarifaire" has now received top marks from science.

According to four macroeconomists from the Paris research institute Cepremap and the Paris School of Economics, it has promoted economic growth and at the same time curbed inflation and the increase in inequalities at considerable but reasonable fiscal costs.

For their short study, they used an estimation model to calculate how France would fare without the “price tag”.

The differences are large: Instead of 2.85 percent, economic growth this year would only be 1.11 percent.

The inflation rate would rise to 7.5 percent instead of 6.4 percent.

And the richest tenth of the population would spend 2.45 times more money on consumer goods than the poorest tenth instead of 2.3 times, because the latter would lose even more purchasing power without the price brakes.

Much lower electricity price

The economists estimate the costs for the French state at around 58 billion euros, which will be partially amortized by the additional growth.

Maintaining the “price tag” in the coming year will add another 52 billion euros.

For 2027, economists are forecasting a debt level of 112.5 percent of economic output.

Without the market interventions, it would have been 110.7 percent.

The intervention in pricing has helped to avoid an inflationary spiral, ie high energy prices spilling over into other sectors of the economy and fueling future inflation expectations, says Antoine Bozio.

The economist from the Paris School of Economics is director of the Institut des politiques publiques (IPP) in Paris, under whose aegis the study was published and debated.

So far, the IPP has not been noticed as being loyal to the government.

It had already attested to the positive overall benefit of the expansive fiscal policy in the corona pandemic.

On the other hand, the IPP identified the richest one percent of French people as the main winners of social and tax policies in President Emmanuel Macron's first term of office, thereby fueling the debate about the redistribution effects in the last election campaign.

From the point of view of the study authors, the "price tag" is even better than transferring money directly to households.

Although that would have been more favorable for the state, it would have led to stronger inflation dynamics and thus to a greater loss of purchasing power, less consumption and less economic growth.

For a similar reason, indexing wages to inflation, as demanded by left-wing politicians, seems less expedient to them.

On the contrary, this would fuel inflation further.

The study suggests sticking with the price tag.

The French government plans to do that anyway, albeit a little less generously: in the coming year, gas and electricity price increases are to be capped at 15 percent.

The approximately 1.5 million French companies with fewer than ten employees and an annual turnover of 2 million euros also benefit.

Last week, the government increased subsidies for larger companies.

There is no lack of help for the French economy: in the spring, the government lowered the electricity tax and, at the expense of EDF, expanded the amount of nuclear power by decree, which the power plant operator and supplier has to sell at a fixed price of less than 50 euros per megawatt hour.

Thanks to the market intervention, French households pay far less for electricity than other countries in Europe, according to an evaluation by the Hello Watt comparison portal this summer.

It put the average price per kilowatt hour at 56.3 cents for Germany, 46.8 cents for Great Britain, 38.3 cents for Spain and only 21.3 cents for France.

The IMF warns

The government considers such figures a success.

"Thanks to the price tag, France has the lowest level of inflation in Europe," said French Finance and Economy Minister Bruno Le Maire earlier this week during a visit by representatives of the International Monetary Fund (IMF) in Paris.

On the other hand, Le Maire did not elaborate on the fact that the IMF made clear statements about its spending policy in this context.

"In 2023, the authorities should embark on a multi-year process of spending-based fiscal consolidation in order to rebuild the political buffers and put the public debt ratio on a clearly declining path," said the IMF's appeal to Paris.

The fiscal support to cushion the energy shock should be more targeted and supported by structural spending reforms, for example in the pension system.

The IMF's advice on the “price tag” is unequivocal: phase out as quickly as possible while increasing targeted aid to those most affected.

That would reduce fiscal costs and create incentives for greater energy savings.