Germany: €200 billion anti-inflation plan

German Chancellor Olaf Scholz has announced a massive €200 billion plan to combat high utility bills and rising inflation in Germany.

Germany fights inflation with a €200 billion plan

German Chancellor Olaf Scholz, following news of the sabotage of Nord Stream 1, which guarantees more than 50% of the country’s gas supplies, at least before the outbreak of the conflict in Ukraine, has established a €200 billion “defense shield.” In addition to this important step by the German Chancellor, Scholz also said he is ready to support without more hesitation the cap on the European gas price, as demanded for months, especially by Italian Prime Minister Mario Draghi. The German plan also includes a reduction in fuel sales tax to protect businesses and households from the impact of soaring energy prices.

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The government’s impressive measure represents a decisive stance against the aggressive policy of Putin’s Russia, to which at first Germany tried to respond with restraint and diplomacy, but now even for the Germans, the measure seems to be full, and Putin’s constant threats against Europe and blackmail through gas supplies no longer seem bearable even for the German chancellor. “We cannot accept this and we are fighting back,” he told a press conference, adding that the new aid measures are “a clear response to Putin.”

Europe’s largest economy since the outbreak of the Ukrainian conflict is trying to cope with rising gas and electricity costs caused in large part by the collapse of Russian gas supplies to Europe, which puts Europe’s top economy at great risk of falling into recession soon.

“Prices have to come down, so the government will do everything it can. To this end, we are setting up a large defensive shield,” Scholz said. At the same time, however, the German government reassured that gas stocks would now be at 90% of storage capacity and thus be relatively calm for the coming winter. At the same time, days ago, Germany said it was ready to reuse coal-fired and nuclear power plants, which it had decided to decommission three years ago.

Germany’s commitment to renewable energy sources

Germany is, in addition, further promoting the expansion of renewable energy, in which it already ranks first in Europe in terms of the amount of energy produced and the development of liquefied gas terminals.

But as mentioned, although Angela Merkel had opted to do without nuclear power, contingent situations have prompted the government to adopt an entirely different strategy on this issue as well.

To help families and businesses withstand winter supply disruptions, particularly in southern Germany, two nuclear power plants that were previously scheduled to shut down by the end of this year will be allowed to continue operating until the spring of 2023.

Leading business associations reacted positively to this announcement, considering that the German economy appears to be one of those most affected by this energy crisis. 

Wolfgang Grosse Entrup, head of the chemical association VCI, said:

“This is an important relief. Now we need details quickly, as companies increasingly have their backs against the wall.”

The aid package, according to initial government notes, will be financed with new loans, partly because the celebrated surplus right in 2022 has been exhausted, and now Berlin will also have to take on debt to finance its struggling economy.

Finance Minister Christian Lindner said he also intends to meet the debt limit of 0.35% of GDP, enshrined in the German constitution, next year:

“We cannot say it any other way: we are in an energy war. We want to clearly separate crisis spending from our regular budget management; we want to send a very clear signal to the capital markets.”