Fitch warns that energy support measures may have a negative impact on France and Britain's finances.

Fitch Ratings will be watching to see if European governments are going to need to?roll out support measures to combat higher energy prices. This could increase fiscal pressures on countries like France and Britain, said a senior analyst.

This week, oil and gas prices have risen as the war in the Middle East has stoked concerns among policymakers and on financial markets about inflation. Inflation, which soared after Russia invaded Ukraine, could rise again.

They will decide whether to provide assistance based on the length of the war and if energy prices continue to rise. Spain has been studying possible?support measures to help consumers and business, while Italy is prepared to increase taxes on companies who benefit from higher gas prices.

Federico Barriga Salazar, Fitch Ratings' head of Western Europe sovereigns, said that governments are more sensitive to energy prices now and may?react sooner. He cited a willingness to discuss support at an early stage.

"Any measure taken to improve the fiscal side of things will cost money." If it is only temporary, then the costs are not significant, especially for large economies.

He said that temporary relief from energy taxes and oil prices which are less volatile than gas would have a more limited effect. However, additional programs to support the industry in general would be more expensive than targeted measures.

He said that even the limited measures could be difficult for countries who already started with a weaker financial position. He referred to France, Belgium, and Britain, given their high debt levels and "challenging" debt trajectory.

Fiscal consolidation plans must be more consistent and longer-term to really address this, as well as anything that complicates the situation by adding to spending pressures.

France's debt exceeds 120% of its output and Britain's close to 100%.

The British finance minister said that it was difficult to predict the end date of a windfall tax on profits from energy companies, but he was committed to eliminating it. Germany has stated that it will not lower taxes on petrol.

Barriga-Salazar said that if governments provide assistance, Fitch will watch to see if they take any offset measures to cover the costs.

He said that the most immediate risk was the impact of energy price increases on inflation and economic growth. (Reporting and editing by Dhara Ranesinghe; Yoruk Bahceli)

(source: Reuters)