Germany introduces €200 billion gas price cap to counter Russia’s ‘energy war’

EuroActiv Politico News

BERLIN — The German government will take on €200 billion in fresh debt to implement a gas price cap aimed at shielding consumers and companies from high energy costs, Chancellor Olaf Scholz announced Thursday.

“The German government will do everything in its power to bring [energy] prices down,” Scholz said at a press conference in Berlin, which he attended virtually as he is still in quarantine following a COVID-19 infection. “We are now putting up a large defensive umbrella … which we will endow with €200 billion.”

The announcement followed days of negotiations between the Social Democratic chancellor, Economy Minister Robert Habeck from the Greens and Finance Minister Christian Lindner from the liberal Free Democrats on how to respond to what Lindner described as an “energy war” launched by Russia.

“This decision is a crystal clear answer to [Russian President Vladimir Putin],” Lindner said at the press conference. “We are economically strong, and we mobilize this economic strength when necessary.”

Under the proposed scheme, the state will set a limit for gas prices and pay the difference between that cap and what gas importers pay on the world market. Major German energy suppliers like Uniper have found themselves in severe financial straits after Russia halted gas supplies to Germany, as it forced them to compensate for missing volumes with expensive last-minute purchases on the world market.

The government previously planned to compensate suppliers for the increased import costs using a gas price surcharge to be paid by customers. The scheme, which would have increased energy bills and faced strong backlash, will now be scrapped, Scholz said.

The current plan for a gas price cap will require taking on large amounts of new debt — also a politically sensitive issue, with Lindner previously insisting that Germany must adhere to its constitutionally enshrined debt brake next year.

Under the proposed compromise, the government will use a derogation to finalize the gas price cap via a special fund that falls outside the debt brake rule.

The government will use an economic stabilization fund that was initially set up to cushion companies from the fallout of the coronavirus crisis.

“We want to clearly separate crisis spending from our regular budget management,” Lindner said, insisting that the German government remained committed to a conservative fiscal policy that aims to limit inflation, which is expected to reach 10 percent in Germany.

“We want to send a very clear signal to the capital markets: Even if we now use such a defensive umbrella, Germany will stick to its stability-oriented, sustainability-oriented fiscal policy,” Lindner said, adding: “German government bonds remain the gold standard in the world.”

The finance minister also took a swipe at the new U.K. government, which announced a mini-budget last week that sparked the pound crashing to an all-time-low against the dollar and sent the cost of borrowing through the roof.

“We are explicitly not following the U.K.’s example down the path of an expansionary fiscal policy,” Lindner said. 

This article has been updated.