Germany deploys R3.5trn shield in “energy war”

Russian President Vladimir Putin and German Chancellor Olaf Scholz.

Getty Images, Nicolas Economou / NurPhoto via Getty

Germany extended a € 200 billion (Rand 3.5 trillion) shield on Thursday to protect households and businesses from skyrocketing energy costs as Europe’s largest economy found itself in an “energy war for prosperity.” and freedom “against Russia.

“The German government will do everything to make prices fall,” Chancellor Olaf Scholz promised, announcing a cap for electricity and gas, as well as a plan to dampen the exceptional profits made by energy companies little affected by the surge in gas prices.

The multi-billion dollar fund was designed to ensure that Germany could cope with the fallout from rising prices “this year and next year and the next,” Scholz said.

Thursday’s announcement came as inflation rose to a 70-year high of 10% in September, according to official data, pushed higher by soaring energy prices.

The country was also expected to plunge into a recession in 2023, with consumer prices seen reaching 8.8% annually, major economic institutes said Thursday.

Germany, which has been heavily dependent on fossil fuel imports from Russia to meet its energy needs, has come under severe pressure as dwindling supplies from Moscow have fueled fuel prices.

“We are in an energy war for prosperity and freedom,” said Finance Minister Christian Lindner.

Protecting consumers from rising utility bills was a “crystal clear response” to Russian President Vladimir Putin that Germany was “economically strong,” he added.

‘Bakers and artisans’

Protection from rising prices was needed for “retirees, workers, families … but also bakers and artisans or large industrial plants that depend on the supply of electricity and gas,” Scholz said.

Business-to-consumer confidence has fallen precipitously in recent months as Germany slides into a winter recession.

In addition to rising household bills, some businesses have been forced to curb production or suffer a loss due to rising energy costs.

The maximum gas price should cover “at least some” of the gas used by households and businesses, while “maintaining an incentive to reduce gas consumption” during the winter as supplies are limited, the government said in a statement. .

Similarly, the government would work to limit the price of electricity for consumers by skimming the profits of energy companies that profited by asking for the highest prices for gas but not using the energy source to generate energy.

Before the announcement, analysts warned that a cap on the price of energy would deprive consumers of a reason to limit their use, even as the government is pleading with households to make any savings possible during the winter.

One in two apartments in Germany are gas-heated, with Thursday’s data showing domestic usage was above average for the time of year.

“Without significant reductions, even in private homes, it will be difficult to avoid a gas shortage,” warned Federal Network Agency head Klaus Mueller.

gas tax

Scholz also announced that the government would abolish a controversial gas tax that would allow energy companies to pass on rising costs and stabilize their businesses.

Germany moved to support the energy market, announcing the nationalization of ailing supplier Uniper, which had been a major importer of Russian gas.

An agreement on financing the new package only emerged after weeks of bargaining within the three-party coalition between Scholz’s Social Democrats, the Greens and the liberal FDP.

The € 200 billion would be pumped into an economic stability fund outside the government’s main budget, allowing the government to abide by constitutional debt rules that limit public deficits – a red line for FDP leader Lindner.

“Through these measures, we want to send a clear signal to capital markets that, even if we use this shield, Germany will maintain its stability-oriented fiscal policy. German bonds remain the gold standard in the world,” he said.

In recent months, Germany has also been quick to exploit new energy sources to reduce gas demand.

Earlier this month, the government said it would keep two nuclear power plants running beyond the end of the year to support the power grid.

The decision marked a major turnaround, with the traditionally anti-nuclear Greens agreeing to delay Merkel-era plans to get out of atomic energy.