Berlin announces releasing 200 billion euros to cap energy prices

Earlier in the day, inflation in Germany, driven by soaring energy prices, was 10%, a first since 1951.

At the heart of aenergy war for prosperity and freedom“, Germany will release up to 200 billion additional euros to cap the prices of gas and electricity which plague its economy and the purchasing power of households. Since the post-covid recovery and especially since the invasion of Ukraine by Russia, the EU has been facing an energy crisis unprecedented for 50 years, which spares no country.

Like Germany, the Union’s largest economy, many European countries have already put in place public aid schemes. A few, such as France and Spain, apply a ceiling to energy prices. This is what Berlin is preparing to do, as Chancellor Olaf Scholz announced on Thursday, presenting “a shieldendowed with 200 billion euros, decided after weeks of negotiations within the coalition.

«Prices must fall (…), the German government will do everything to bring them down“both for households and for businesses, he hammered. In September, inflation in Germany jumped to 10.0% year on year, the highest value recorded since 1951, according to provisional figures published on Thursday. “We find ourselves in an energy war for prosperity and freedom“added Finance Minister Christian Lindner, stressing that the situation had worsened”after sabotage by unknown perpetrators» Nord Stream gas pipelines in the Baltic Sea.

Clear answer to Putin

«This energy war aims to destroy much of what people have personally built for decades…“said the minister. “We can’t accept this and we defend ourselves“, he added, presenting the new aid measures as “a clear answer to Putin“. The details of the price cap device, demanded for weeks by companies taken by the throat, must still be refined and the date of entry into force of the measure is not yet known.

Germany is paying a high price for its dependence on Russian gas, which accounted for 55% of its gas imports before the war in Ukraine. She must now find other sources of supply on the spot market where prices have exploded. The country will fall into recession next year, predict economists and the energy crisis will leave its mark. “Gas prices are expected to remain well above pre-crisis levels. This will result in a lasting loss of prosperityfor Europe’s largest economy, warned the country’s main economic institutes in their autumn forecasts released on Thursday.

The «shieldannounced by Berlin comes on top of previous support measures already totaling around 100 billion euros. The cap announced Thursday should be financed by the Stabilization Fund for the economy, created during the pandemic to support businesses and which will be provided with additional resources.

Crisis Bill

This exceptional public fund, which is financed via specific lines of credit and therefore not counted in the annual budgetary expenditure, will allow the government to remain within the nails of its financial commitments. Germany wants to return next year to the rule of “debt brake“, constitutional principle which prohibits it from going into debt at more than 0.35% of GDP per year and which had been suspended since 2020 due to the pandemic.

If the budget rule is officially respected, the bill for the energy crisis is already considerable for the Scholz government, which has also initiated the nationalization, or taken control, of several companies in the energy sector threatened with bankruptcy. In announcing the energy price cap on Thursday, Berlin took the opportunity to bury a controversial proposed gas surcharge, which would have placed an additional burden on households and businesses across the country.

Supposed to enter into force on October 1, this surcharge was intended to support companies in the gas sector by passing on part of the dizzying increase in their costs to consumers. But it had caused an outcry since its announcement this summer, and seemed more and more obsolete after the nationalization in September of Uniper, the first German importer of Russian gas.

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