Fri, 01 Dec 2023

BERLIN, Germany: As Germany grapples with surging gas and electricity costs caused largely by a collapse in Russian gas supplies to Europe, German Chancellor Olaf Scholz has proposed a $194 billion "defensive shield."

The shield, meant to protect companies and households from the impact of the energy cut offs, includes a gas price brake and a cut in sales tax for fuel.

"Prices have to come down, so the government will do everything it can. To this end, we are setting up a large defensive shield," said Scholz.

The details of the emergency price brake on gas will be announced next month. The government is scrapping a planned gas levy meant to help firms struggling with high spot market prices.

A temporary electricity price break will subsidize basic consumption for consumers and small and medium-sized companies. Also, sales tax on gas will fall to 7 percent, from the current 19 percent.

In its efforts to reduce its dependence on Russian energy, Germany is also promoting the expansion of renewable energy and developing liquefied gas terminals.

Meanwhile, industry groups welcomed the package. "This is important relief," said Wolfgang Grosse Entrup, head of the VCI chemicals association. "Now we need details quickly, as firms increasingly have their backs to the wall," as quoted by Reuters.

The package will be financed with new borrowing this year, as Berlin makes use of the suspension of a constitutionally enshrined limit on new debt of 0.35 percent of gross domestic product.

Finance Minister Christian Lindner has said he wants to comply with the limit again next year.
"We can put it no other way: we find ourselves in an energy war," said Lindner. "We want to clearly separate crisis expenditure from our regular budget management, we want to send a very clear signal to the capital markets," he said, according to Reuters.

Opposition conservative Markus Soeder, premier of the southern state of Bavaria, said the steps gave the right signal.

"It gives industry and citizens confidence that we can get through the winter," he said.

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