Germany to spend billions to fight high energy prices

BERLIN (AP) — Germany plans to spend up to 200 billion euros ($195 billion) to help consumers and businesses as soaring energy prices due to war in Ukraine push the Europe’s largest economy in an impending recession.

Chancellor Olaf Scholz said on Thursday the government was reactivating an economic stabilization fund previously used during the global financial crisis and the coronavirus pandemic.

The fund will be used to limit the price customers pay for natural gas, which is used to heat homes, generate electricity and power factories. The government is scrapping a previously proposed surtax on natural gas that was supposed to help spread the rising cost of purchasing fuel on the world market.

“You could say it’s a double whammy,” Scholz said, speaking at a news conference via video link as he self-isolates due to a COVID-19 infection.

Scholz said Russia’s decision to cut natural gas to Europe and recent leaks on the Nord Stream 1 and 2 pipelines from Russia to Germany showed that we should not expect new Russian energy supplies in the near future. European officials say gas cuts by state-owned exporter Gazprom are energy blackmail aimed at pressuring European governments for support for Ukraine and for sanctions against Moscow.

“We are well prepared for this situation,” Scholz said. “We have made decisions that allow us to deal with this changed situation.”

The fund, part of efforts across Europe to ease energy bills for households and businesses, was announced as German inflation hit double digits for the first time since decades, reaching 10.9% in September according to the harmonized EU standard. Leading economists are warning Germany is facing a recession as high prices for food, fuel, electricity and heating leave people with less money to spend on other things.

“We are slipping into a recession and will not come out of it until next spring,” said economist Torsten Schmidt of the Leibniz Institute for Economic Research. “The main burden is currently being felt by private households, which are experiencing a massive loss of purchasing power.”

Germany has been heavily dependent for years on cheap gas from Russia, and energy-intensive companies have been hit hard after Gazprom cuts sent gas prices skyrocketing. Government and utilities have turned to more expensive liquefied gas that comes by ship from suppliers, including the United States, and has filled the country’s underground storage to 91% before the winter heating season. A shortage of gas is to be avoided if the winter is average.

Still, the government could be forced to ration energy to businesses in the event of an unusually cold winter, a scenario that could lead to another sharp downturn in the economy. Even now, high prices are forcing steel and fertilizer makers to halt production, claiming it’s unprofitable because of the cost.

Finance Minister Christian Lindner insisted the fund would not involve further regular borrowing, saying Germany “is expressly not going the way of Britain”.

The UK government recently announced debt-funded tax cuts despite plans to spend billions to protect homes and businesses from soaring energy prices, leading the pound to fall sharply this week.

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