The German government took the checkbook. German Chancellor Olaf Scholz announced on Thursday 29 September that an envelope of 200 billion euros will be released to curb energy prices.
“Prices must go down (…), the German government will do everything to bring them down” for households and for businesses, he said at a press conference in Berlin, at the end of negotiations with the government to establish a new plan to support purchasing power.
The government should detail the details of the new device added to the previous support measures that have already amounted to 100 billion euros.
“We find ourselves in an energy war for prosperity and freedom”, added Finance Minister Christian Lindner, stressing that the situation has worsened “after sabotage by unknown perpetrators” Nord Stream gas pipelines in the Baltic Sea.
“This energy war aims to destroy most of what people have personally built for decades, what has been built for decades in the middle class, crafts and industry. We cannot accept this and we defend the ourselves,” said the Minister, who presented these measures to help as “a clear answer to Putin”.
Energy drives inflation
The increase in energy prices in Germany, combined with the increase in food prices, consequences of Russia’s offensive in Ukraine, pushed inflation, which in September reached the 10% mark in a year. This is the highest amount recorded since December 1951.
“A cap on gas prices could slow inflation in the short term,” considered Ulrich Kater, chief economist at Deka. And to determine that “Things will only improve if liquefied gas transportation capacities can be rapidly expanded in the coming year.”
The price index gained 2.1 points annually compared to August, according to provisional figures from the Destatis statistics institute published on Thursday. The harmonized price index, which serves as a reference for the European Central Bank, rose by +10.9%.
The energy crisis caused by Russia’s invasion of Ukraine is the cause of the economic slowdown in Europe’s largest economy. “The main reason for the deterioration of the economic outlook is the decrease in gas exports from Russia”, writing five German economic forecasting institutes (DIW, IFO, IFW, IWH and RWI) in their autumn report, which accounted for 55% of gas imports to Germany before the war.
Economic institutions predict a difficult year 2023 for the country, with higher inflation, expected at 8.8%, and a reduction in GDP of 0.4%. Only in 2024 can inflation fall to around the 2% mark, the target set by the European Central Bank.
But Germany is not out of the woods, say economists. “Even if the situation eases somewhat in the medium term, gas prices should remain above pre-crisis levels. This will result in a lasting loss of prosperity” for Europe’s leading economy, they warn.
The Germans must try
Rising energy prices haven’t stopped Germans from turning up the heat. Gas consumption in homes and businesses actually jumps in the first autumn frosts. During the week of September 19, average consumption rose to 483 GWh, greater than the average for the years 2018 to 2021 in the same period (422 GWh per week), according to the weekly report of the Federal Network Agency. .
“The numbers for this week are very disappointing. It will be difficult to avoid a shortage situation this winter without a lot of storage,” answered Klaus Müller, head of the Bundesnetzagentur in a statement. And remember that a drop in total gas consumption of at least 20% is necessary this winter to avoid any risk of shortage.
“Last week was colder than the same time last year (…)” and “We have to keep saving money even though the temperature is lower, and it doesn’t happen by itself.” he insisted.
Households and small businesses account for around 40% of gas consumption in Germany and so far have only “small contribution” to reduce consumption, said the agency.
A positive point, gas reserves are filled to more than 91%
In the industry, which monopolizes the remaining 60%, the Agency, on the other hand, noted savings in August and last week. Many companies have had to reduce their production in the face of prohibitive energy costs.
One positive point though: the country’s gas reserves have now reached 91.5%, points out the report. Despite this good level of filling the tanks, the country must meet three conditions to spend the winter without freezing. Plans to increase gas imports should be implemented, the supply should also remain stable in neighboring countries and finally “We have to save gas even though it’s colder in the winter”Klaus Müller is listed.