When Pedro Sánchez argued in favor of instituting an extraordinary tax on large energy companies and, subsequently, on banks, reactions were swift. Critics saw the move as a blow to investment and a fresh example of government interventionism. Proponents, however, raised a fundamental fairness question: if certain firms were earning outsized profits thanks to extraordinary circumstances that were impoverishing millions, wasn’t it reasonable that some portion of those profits should return to society?
Once again, this debate seems to mirror Spain’s political polarization. Yet narrowing the issue to a clash between the PSOE and the opposition risks overlooking a particularly compelling trend. The question of so-called ‘windfall profits’ has a presence and relevance across Europe, having already entered major national economic debates. Thus, the issue extends beyond tax policy and touches on a deeper question of who has the right to appropriate economic value in contexts such as the Middle East, where no single company bears fault but costs are borne collectively.
The market economy rests on a straightforward premise: companies take risks, mobilize capital, innovate, and compete. If they succeed, they reap profits; if they fail, they bear the losses. Meanwhile, the State sets the rules of the game, corrects certain market failures, and remains responsible for collecting general taxes to fund public services. In short, profit and risk were once part of the same social contract—or so it was, because even with the proposed dynamics, the logic is beginning to fray.
“In all these cases, the source of extraordinary profit wasn’t a business decision but an external shock that affected the entire society”
The most significant crises of recent years have shown that a growing share of corporate profits no longer derives exclusively from corporate merit. Clear examples include the pandemic, which disrupted whole markets in unpredictable ways, followed by Russia’s invasion of Ukraine, which sent energy prices spiraling—without any notable innovation on the part of electricity or oil companies. As a consequence of the war, rapid interest-rate increases boosted margins at banks while making mortgages more expensive for millions of households. In all these cases, the origin of extraordinary profit wasn’t a deliberate business choice but an external shock affecting society as a whole.
Here arises the question that more and more European governments are now asking. If the extraordinary ‘windfall’ profit doesn’t respond solely to private effort but clearly to collective circumstances, should a portion of those profits be returned to the collective?
Spain’s Prime Minister Pedro Sánchez answered in the affirmative. Spain was among the first European countries to propose extraordinary taxes on energy companies and banks. Sánchez has repeatedly argued that it is unreasonable for certain firms to accumulate historic profits while households and other companies endure unprecedented inflation. Although inherently political, that argument also carries moral weight.
What’s noteworthy is that Spain hasn’t been alone in pursuing this path. Italy approved a similar tax on energy companies, and the United Kingdom introduced an extraordinary levy on North Sea oil and gas companies under Prime Minister Rishi Sunak. Greece, Romania, and other Member States have taken similar steps, and the European Union itself has encouraged mechanisms to capture part of the extraordinary profits obtained by certain energy companies after the price surges caused by the war in Ukraine.
In other words, the debate has broken through ideological frameworks—or at least those of left versus right. The question of how to allocate revenues arising from exceptional events has taken on a European scale. And reaching a definitive answer is far from easy, since the arguments on both sides are solid.
“They’re not the usual reward for smart investment or innovation, but windfall gains derived from exceptional circumstances”
Those who advocate for such taxes argue that extraordinary profits are precisely that: extraordinary. They aren’t the normal reward for savvy investment or innovation, but windfall gains born of exceptional circumstances. If a company earns billions more because a war artificially drives up commodity prices, or because a central-bank decision automatically widens its own financial margins, then it would seem reasonable that some of that profit could finance those who bear the costs of the very crisis.
From that perspective, a democratic argument also applies. In many strategic sectors—primarily energy, banking, defense, and infrastructure—business activity depends on an intensely regulatory framework. The State’s role is straightforward: grant licenses, set rules, and regulate the market. If public authorities contribute decisively to creating the conditions for those benefits to exist, it’s legitimate to question whether they too should participate in profits when they reach exceptional sizes.
How has the other side responded? Critics warn that the concept of ‘extraordinary profit’ is extremely difficult to define. When does a high return stop reflecting risk and become windfall income subject to taxation? Energy companies, for instance, invest billions in projects with multi-decade horizons. Years of exceptional earnings are often followed by periods of substantially lower returns. Taxing only the favorable moments could profoundly alter investment incentives.
There’s also the problem of legal certainty. If governments can decide (depending on political context) when a profit is ‘excessive’, that directly affects regulatory predictability. In sectors that require massive investments—from power grids to data centers to new technologies—regulatory stability stands among the most valuable assets.
In short, both sides’ arguments contain a measure of truth. This may be because the real dilemma isn’t simply whether the State should intervene more or less in the economy; the core concern is that the very nature of European capitalism is undergoing transformation.
For much of the 20th century, the prevailing belief was that the State could correct the market. Today, the State actively helps create the market. The energy transition, for example, relies on substantial public subsidies. European strategic autonomy aims to mobilize hundreds of billions in industrial aid. The defense industry is driven by public contracts. And pharmaceutical companies? They grew substantially during the pandemic, aided in part by large-scale purchases financed by States. And let’s not forget AI-related technologies, which depend on energy infrastructure, regulation, and public funding that strongly shape their development. In all these areas, it’s increasingly difficult to separate the creation of private value from the public actions that make that value possible.
“The concept of redistribution is compounded by the task of deciding how to distribute income generated by a permanent collaboration between the public and private sectors”
Economist Mariana Mazzucato has been advocating this very idea for years. The work of the State goes beyond correcting market failures, because it’s also capable of creating entire markets through public investment, research, regulation, and contracting. If we accept that premise, the debate over extraordinary profits takes on a new dimension. The concept of redistribution is compounded by the task of deciding how to distribute income generated by a permanent collaboration between the public and private sectors.
Naturally, that view carries its own risks. If every rise in profits can be subjected to political bargaining, it might create greater obstacles to attracting investment and innovation. And as we know, these are issues on which Europe must continue to focus, given competition from the United States and China. That’s probably Europe’s real dilemma.
Europe needs more private investment to finance the energy transition, digitalization, and defense. But it also faces mounting social pressure to ensure that the enormous revenues generated by those efforts aren’t concentrated in just a few companies, while the costs fall on ordinary citizens. There’s no simple answer.
What seems clear is that the notion of ‘profit fallen from the sky’ is here to stay. With every new crisis—war, pandemic, technological revolution, or even each monetary policy decision—the same question will arise: Should the State limit itself to collecting general taxes, or can it claim a share of profits that wouldn’t have existed without certain extraordinary circumstances shared by society as a whole?
Pedro Sánchez has been one of Europe’s leaders who have answered most decisively in the affirmative. Other governments of varied political persuasions have reached similar conclusions. Critics continue to warn of risks to investment and legal certainty, but both sides may be debating an even deeper issue without naming it.
“Then we need to ask who really «generates» the profits, as well as who can legitimately «claim» them”
In European capitalism, an increasing number of strategic sectors now operate as a co-production that combines private initiative with the State’s regulatory role. When, as today, public power assumes such a central role in financing innovation, safeguarding markets, guaranteeing infrastructures, and absorbing a large portion of systemic risk, we must ask who truly ‘generates’ the profits, as well as who can legitimately ‘claim’ them. It is very likely that this will be the defining economic debate of Europe for the next decade.
