The German government announced plans to borrow €200 billion ($195 billion) to shore up natural gas. Prices for homes and businesses. A bigger price tag than that £150 billion ($165 billion) The UK government is expected to borrow to fund its own price cap.
Germany, Europe’s largest economy, is trying to cope with rising gas and electricity costs due to a collapse in Russian gas supplies to Europe. Moscow has blamed these supply problems Western sanctions followed Invasion of Ukraine In February.
“Prices must fall, so the government will do everything it can. To this end, we are setting up a big defensive shield,” German Chancellor Olaf Scholz said. Thursday.
Under plans to run until spring 2024, the government will introduce an emergency price brake on gas, details of which will be announced next month. It also repeals a planned gas tax to help companies struggling with high spot market prices.
A temporary electricity price brake will subsidize basic consumption for consumers and small and medium enterprises.
Sales tax on gas will drop sharply from 19% to 7%.
The package will be financed with new borrowing this year, as Berlin uses a suspension of the constitutionally enshrined limit on new debt of 0.35% of GDP.
Finance Minister Christian Lindner has said he wants to comply with the cap again next year.
Lindner of the pro-business Free Democrats (FDP), which shares power with Scholz’s Social Democrats and the Greens, said on Thursday that the country’s public finances were stable.
“We can’t put it any other way: We’re in an energy war,” Lindner said. “We want to clearly separate crisis spending from our regular budget management. We want to send a very clear signal to the capital markets.
Lindner also said it would act as a brake on inflation, which has reached its highest level in more than a quarter century.
Consumer prices rose 10.9% in the year to September, provisional data from the country’s statistics office showed on Thursday.
Germany has historically relied on Russian natural gas exports to fuel its homes and heavy industry. But a sharp drop in Moscow’s gas exports since the start of the war has pushed some of Germany’s producers to the brink.
“The Russian attack on Ukraine and the crisis in energy markets are leading to a significant decline in the German economy,” Torsten Schmidt, head of economic research at RWI – Leibniz Institute for Economic Research, said in a statement on Thursday. Other Top German Economic Institutions
While Germany’s GDP is expected to rise 1.4% this year, the report predicts it will contract by 0.4% in 2023.
Although tight gas supplies should be eased in the medium term, prices remain “well above pre-crisis levels,” the report said.
“This would mean a permanent loss of prosperity for Germany,” it said.
The industry has welcomed the government’s plans.
“This is important relief,” said Wolfgang Grosse Entrup, president of the chemical industry trade group VCI. “Now we need details quickly because companies increasingly have their backs to the wall.”
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