Germany will have to borrow about €200 billion additionally to successfully pass the heating season. The funds will be spent on energy subsidies for households and businesses. The next increase in spending was announced by the German government, reports Bloomberg.
The funds will be directed to a special fund, which was created during the coronavirus pandemic, and will now be repurposed for new needs. According to German Chancellor Olaf Scholz, the fund's funds will be used to compensate and limit gas prices for consumers. Another measure that the German authorities plan to take is to impose a tax on the "windfall profits" of energy companies that have become the main beneficiaries.
“Prices should come down. Russia is not only deploying weapons in the war with Ukraine, but also turning its energy supplies into international-level weapons,” Olaf Scholz quoted the agency as saying, who compared the crisis measures to “a big umbrella for the economy.”
Germany turned out to be the most vulnerable to the reduction of Russian gas supplies. The local industry has been using cheap Russian-made energy for many years, demonstrating high rates of economic growth, but now the country is forced to reap the benefits of weak supply diversification. The energy crisis for the first time in 20 years has driven inflation in the country to double digits. The authorities expect to curb its growth by limiting energy prices.
The government has previously allocated €300 billion to fight the energy crisis. These amounts are comparable to the overall government borrowing plan for 2022 set at €450bn, of which €140bn was new net borrowing in external markets. Now, Germany's "energy credits" will be added to these expenses. Nevertheless, experts doubt the effectiveness of the measures taken.
Lion Hirt, a professor of energy policy at Berlin's Herty School, is convinced that artificial price caps are "absolutely the wrong approach" and will only lead to fuel shortages. He believes that under such conditions, the industry will not take any measures to reduce consumption, and energy reserves will run out faster than the federal government believes.
The German economy has been hardest hit by the energy crisis unfolding in Europe amid cuts in Russian gas supplies. Many enterprises reduce production, transfer it to other jurisdictions and save on energy in every possible way. Experts warn of a possible de-industrialization of Germany due to difficulties in providing energy.
