Will anyone tell Europe the age of cheap living is over?

In supermarkets across Europe food prices tick upwards almost every week. The war in Ukraine adds more pain to already sharply rising energy bills. Inflation instantly wipes out the gains of those lucky enough to receive a pay rise.

As public anger rises over the cost-of-living crisis, and governments try to offset the damage, senior European officials say something different. They say that the Continent must accept that the two necessities of life — food and fuel — have been far too cheap for a generation, and national leaders must be prepared to risk a political backlash and tell voters the truth.

This spring’s inflation figures for the eurozone are bleak: annual inflation is at more than 7 per cent, and a 44 per cent increase in energy costs is also driving up food prices. A double whammy of the invasion of Ukraine, leading to the phasing out of Russian fossil fuel imports, and Europe’s transition to carbon-free energy have hastened the huge price increases.

Higher energy costs, including a sixfold increase in the cost of gas as an agricultural input, have driven food prices even higher. And the war in Ukraine has disrupted markets in key agricultural commodities, such as wheat and cooking oil, causing knock-on effects all the way along supply chains.

In EU countries the cost of soft wheat has increased 64.6 per cent since March last year and the price of rapeseed, a key oil seed, has risen 77.8 per cent. There are now shortages of sunflower oil, of which 73 per cent of global exports originate in Russia and Ukraine.

The European Commission, which sets key energy policies across the European Union, sees the higher bills as a long overdue and unavoidable reckoning with reality.

Diederik Samsom, chief of staff for Frans Timmermans, the commission’s executive vice-president responsible for energy policy, warned that the previous low cost of living came at the expense of the environment and depended on imports of Russia’s fossil fuels.

Samsom admitted that “no one dares to say out loud” to voters that past living standards were unsustainable and that higher prices will be permanent.

“Yes, energy will be much more expensive as of now. Energy was way too cheap for the last 40 years,” he told a recent meeting of Brussels policymakers at the Bruegel think tank, urging governments to confront “taboos”.

 “We have profited from it and created enormous wealth at the expense of planet Earth and, as we realise right now, at the expense of geopolitical imbalances [with dependency on Russia]. Both need to be repaired. In order to repair them we need to pay more for energy — and also for food. The two basic needs of life — food and energy — we have paid way too little for in the past 40 years.”

EU and eurozone spending rules are already under strain after pandemic support to businesses, and officials fear that government subsidies to reduce fuel or other costs could trigger a new European debt crisis.

The commission’s position that Europeans have had it “way too cheap” is seen in many national capitals as political dynamite that risks a backlash on the same level as Europe-wide opposition to austerity a decade ago, policies that are widely regarded as driving the rise of right-wing populism.

In many European countries, especially in Spain, Italy, Portugal and Greece, living standards had taken more than a decade to catch up after the eurozone crisis only to be hit by the pandemic and, now, a cost of living squeeze that could trigger a new recession.

Belgian figures today showed that the effect of a VAT reduction to help people pay their energy bills had been wiped out by rising prices one month after it was introduced. The tax break reduced the average family’s cost by €237 annually but after a further spike in prices in April, bills are estimated to be higher by €450 this year.

Over the spring both Italy and Spain were hit by protests against increased fuel and energy prices and this weekend’s French presidential election was dominated by the question of the cost of living.

Victory celebrations for President Macron have been cut short by the need to take emergency measures to ease costs amid fears of a new explosion of popular protest over the price of fuel, in the vein of the gilets jaunes movement that shocked France in 2018 and 2019.

Anger over rising bills is considered the cause for the lowest French presidential election turnout in 50 years, and lay behind big gains for Marine Le Pen, Macron’s populist challenger.

 “No matter what happens we will do more to protect the French from spiking petrol prices,” Bruno Le Maire, the finance minister, said on Monday, promising to increase an emergency relief fund that has already blown a €25 billion hole in his budget.

The pressure heralds a new budget crisis after the pandemic increased the French annual budget deficit to 6.5 per cent last year, more than twice the eurozone’s 3 per cent spending limit.

The commission, which enforces eurozone budget rules, takes a dim view of the French subsidy policy which, Samsom said, was the “wrong response”.

 “They are trying to keep the price down while the price is going up. Every economist will explain to you that the only answer is getting demand down,” he said, noting that higher prices were key to pushing down consumption.

To reduce costs, the EU last week asked people to cut their personal energy use. Europeans have been asked to do their bit to cut energy revenues to the Kremlin by driving less, turning down their air conditioning and working from home three days a week.

Samsom, again admitting what no national minister will say in public, said social unrest was probably inevitable as there was little political space for policies to cushion the blow of higher living costs. “It cannot be done overnight as it creates too much havoc and trouble in society,” he said. “But given the current situation we have little time.”