Germany to borrow 200 billion dollars to reduce consumer energy bills

CNN business

German government announces plans to borrow 200 trillion euros ($195 billion) to curb natural gas prices for homes and businesses. This is a higher price than the £150 billion ($165 billion) the UK government will borrow to fund its price cap.

Germany, Europe’s largest economy, is struggling to cope with rising gas and electricity costs caused by the collapse of Russian gas supplies in Europe. Moscow has blamed these supply problems Western sanctions that followed the invasion of Ukraine in February.

“Prices must fall, so the government will do everything it can. To this end, we are setting up a large defensive shield,” said German Chancellor Olaf Scholz. Thursday.

Under the plans, which will last until spring 2024, the government will introduce an emergency gas price brake, details of which will be announced next month. It is also scrapping a planned gas levy to help businesses struggling with high market prices.

A temporary brake on the price of electricity will subsidize basic consumption for consumers and small and medium-sized enterprises.

The gas sales tax will drop significantly, from 19% to 7%.

The package will be financed by new borrowing this year, as Berlin takes advantage of the suspension of the constitutional limit on new debt of 0.35% of gross domestic product.

Finance Minister Christian Lindner has said that he wants to meet the limit again next year.

Lindner, from 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 another way: we find ourselves 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 the steps will act as a brake on inflation, which has reached its highest level in more than a quarter of a 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 power its homes and heavy industry. But the sharp decline in Moscow’s gas shipments since the start of the war has pushed some German manufacturers to the breaking point.

“The Russian aggression in Ukraine and the resulting crisis in the energy markets are leading to a sharp decline in the German economy,” Torsten Schmidt, head of economic research at RWI – Leibniz Institute for Economic Research, said in a Thursday report co-authored by the three. Other top economic institutes in Germany.

While Germany’s GDP is expected to rise by 1.4% this year, the report predicts that it will fall by 0.4% in 2023.

The report said that, while tight gas supplies should ease in the medium term, prices are likely to remain “well above pre-crisis levels”.

“This will mean a permanent loss of prosperity for Germany,” he said.

Industry groups have welcomed the government’s plans.

“This is an important relief,” said Wolfgang Grosse Entrup, head of VCI’s chemicals industry trade group. “Now we need details fast, as companies increasingly have their backs to the wall.”