Germany will borrow $200 billion to reduce energy bills for consumers

London
CNN Business
–

The German government has announced plans to borrow 200 billion euros ($195 billion) for a natural gas ceiling Home and business prices. This price is greater than 150 billion pounds ($165 billion) The UK government is expected to borrow to finance its rate ceiling.

GermanyEurope’s largest economy is trying to cope with rising gas and electricity costs caused in large part by a collapse in Russian gas supplies to Europe. Moscow blamed these supply issues Western sanctions that followed Invasion of Ukraine in February.

Prices have to come down, so the government will do everything it can. “To this end, we are creating a great defensive shield,” German Chancellor Olaf Schulz said. Thursday.

Under the plans, which are set 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 eliminated a gas tax that was planned to help companies suffering from high spot market prices.

Temporary electricity price braking will support basic consumption of consumers and small and medium-sized businesses.

The sales tax on gas will drop sharply to 7% from 19%.

The package will be funded by new borrowing this year, as Berlin benefits from suspending the constitutionally mandated limit on new debt of 0.35% of GDP.

Finance Minister Christian Lindner said he wanted to stick to the limit again next year.

Lindner, of the pro-business Liberal Democrats who share power with Schulze’s Social Democrats and the Greens, said Thursday that the country’s public finances are stable.

“We can’t put it any other way: we find ourselves in an energy war,” Lindner said. We want to clearly separate crisis expenditures and manage our regular budget. We want to send a very clear signal to the capital markets.”

Lindner also said the steps would be a brake on inflation, which has reached its highest level in more than a quarter century.

Preliminary data from the country’s statistics bureau on Thursday showed consumer prices rose 10.9% in the year to September.

Germany has historically relied on Russian natural gas exports to fuel its homes and heavy industries. But the sharp drop in gas shipments in Moscow since the start of the war has pushed some German manufacturers to the brink.

Thorsten Schmidt, head of economic research at RWI – Leibniz Institute for Economic Research, said in a report Thursday co-authored by three other major German economic institutes.

While German GDP is expected to rise by 1.4% this year, it is likely to decline by 0.4% in 2023, the report forecasts.

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

“This would mean a permanent loss of prosperity for Germany,” she said.

Industry groups have welcomed the government’s plans.

“This is significant,” said Wolfgang Gross Entrop, head of trade group for the chemical industry VCI. “Now we need the details quickly, as corporate support for the wall is growing.”