Germany’s government will provide a €200-billion “shield” for businesses and low-income households grappling with relentlessly rising energy bills, the government announced last week.
Like the U.K., Germany will borrow to subsidize consumer prices of electricity and natural gas.
The borrowed funds will be directed through the European Union’s Economic Stabilization Fund, established in 2020 to help companies survive COVID-era lockdowns.
The aid package is the largest offered by a European Union (EU) member nation since the energy crisis began in the wake of the Ukraine war and Western sanctions against Russia.
The aid plan followed news that Germany’s inflation rate ratcheted up to 10.9 percent in September, the highest in 70 years. The rate was 8.8 percent in August.
The jump in Germany’s prices helped lift the EU’s rate of price increases to 10 percent for the month.
Energy costs have soared 43.9 percent in Germany so far this year, accelerating from August’s rate of 35.6 percent. Food prices are up 18.7 percent since 1 January.
TRENDPOST: Despite Germany joining other European nations and the United States to impose strict oil and gas sanctions on Russia, the German government has accused Russia of “weaponizing” its gas exports to Europe, which it had cut back sharply last fall as a political pressure tactic. Russia entirely shut down the Nord Stream 1 pipeline last month.
The Nord Stream 1 and 2 pipelines under the Baltic Sea have been blown up in what Moscow claims was an act of sabotage. (See Trends Journal cover.)
Running on Empty
As a result, “gas will not be delivered from Russia for the foreseeable future,” German chancellor Olaf Sholz said in a public statement.
The countries are in an “energy war,” German finance minister Christian Lindner added, saying Russia is attempting to destroy “what people have built up over decades…we can’t accept that and we will fight back.”
Despite borrowing €200 billion, Germany will respect the “debt brake” in the country’s constitution that limits borrowing.
“We are not pursuing the example of Great Britain by pursuing an expansive monetary policy,” Lindner pointed out, referring to the U.K.’s recently announced plans to cut taxes, subsidize energy bills, and borrow an indefinite amount to make up the difference.
However, subsidies alone will not solve the crisis, economy minister Robert Habek cautioned.
“While we’re willing to spend a lot of money to bring down prices, there is still a need to save energy,” he said.
Germany’s freelancing of an aid package conflicted with EU plans to craft a shared approach to “tackle the [region’s energy crisis] at its roots”, the Financial Times quoted one EU diplomat as saying.
Germany’s action is “not agreed, not shared, not communicated, which undermines the reason for the [European] union,” Guido Crossetto, a senior advisor to Giorgia Meloni, Italy’s new prime minister, said in a statement.
Most EU member nations supported imposing a cap on natural gas prices, but Germany was among those opposing the idea.
On 30 September, EU ministers agreed to impose a 5-percent mandatory cutback in peak electricity use, a windfall tax on fossil fuel producers, and a cap on the price of electricity not produced by gas.
Under the new agreement, governments will collect revenues above the electricity price cap and distribute them to consumers.
TRENDPOST: Germany’s subsidy plan is being attacked by other European nations. As reported in a joint op-ed for the Irish Times, Paolo Gentiloni, European Commissioner for the economy, and Thierry Breton, European Commissioner for the internal market wrote that “The massive €200 billion aid plan decided by Germany (worth 5% of its GDP) responds to a need we recognise and have highlighted—to support the economy.” They also noted that the plan raised questions as to “How can EU countries that do not have the same fiscal space also support businesses and households?”
Philipp Lausberg, a policy analyst at the European Policy Centre (EPC), told Euronews that.”I see a great risk of fragmentation because the €200 billion subsidy is basically a huge amount of money that creates large advantages for German companies and consumers that other countries cannot provide.”
“There is a competitive advantage for German companies that goes against the spirit of the single market.”