A German government-appointed expert panel on Monday proposed a two-stage system for distributing some of the up to €200 billion in subsidies Germany recently announced (and sparked outrage across Europe in the process) to ease the strain of high energy prices, a plan that the group said would still encourage people to save gas, but will merely subsidize even more gas purchases and in a supply-constrained environment, lead to even higher inflation (especially when paired with Russian “price caps”).
According to AP, the panel suggested that the state take on the cost of natural gas customers’ monthly bill in December, followed by a price subsidy for part of their consumption starting next spring. That “gas and heating price brake” would kick in next March and apply until April 2024, panel co-chair Veronika Grimm said. Private gas customers would pay 0.12 euros per kilowatt hour for the first 80% of the amount they used in 2021.
That “corresponds roughly to the price level that is expected in the future,” Grimm said, telling reporters in Berlin that the plan aims to introduce a “new normal” but prevent price rises beyond that…. whatever that is.
“It’s not going to be the case that the price goes back down to 7 cents in the future — we won’t receive Russian gas for a long time.”
Grimm argued that the plan still incentivizes people to save gas, because people who do so will avoid paying higher prices beyond the cap level. She also noted that Germany, which has Europe’s biggest economy, needs to reduce its previous gas consumption by about 20% to prevent a potential shortage this winter, which will never happen voluntarily and will required forced rationing throughout the winter, i.e., rolling blackouts.
Co-chair Siegfried Russwurm, the head of the Federation of German Industries, said the proposal foresees businesses paying 0.07 euros per kilowatt hour for 70% of their 2021 gas use, starting at the beginning of January. Russwurm said that gas price rises are posing an “existential” threat to an increasing number of companies.
“This is not just about the fate of individual companies and their jobs; it is about the strength and the export successes of German industry, because they are the backbone of the German economy,” he said.
The panel, which included representatives of industry and labor unions, scientists and lawmakers, earlier Monday presented its conclusions to Chancellor Olaf Scholz and the country’s economy and finance ministers. It put the cost of the proposed gas price subsidies at about 90 billion euros.
Many European countries have proposed similar subsidies on fossil fuels, prices for which have increased sharply worldwide in the wake of Russia’s attack on Ukraine. But many of Germany’s neighbors have criticized the huge sum Berlin is setting aside, arguing that it will price others out of the market.
In fact, the reason why today German bund yields exploded higher is because Bloomberg reported that Germany had conceded to peer pressure and agreed to joint and mutual bond issuance in Europe, in effect federalizing the continent at Germany’s expense. It took Germans about two hours to fully reverse and argue that was never planned once they saw the bloodbath across the German bond sector.
Scholz has argued that the criticism is based on a misunderstanding of his government’s plans and says Germany’s subsidy will prevent a shortage of gas that might occur under a system of enforced price caps proposed by other countries. He also has noted that it applies to a relatively long period. Nobody believed him for the simple reason that he is, in fact, lying and having Europe’s largest and richest economy, he is willing to throw all of his peer overboard if it means Germans have a realtively warm winter.
The government will “work very quickly on implementing the proposals” by the panel, Scholz spokesman Steffen Hebestreit said. He noted that a check on whether they comply with European Union law will be necessary, and said that Germany “will act in European solidarity.”
Russia started reducing gas supplies to Germany through the Nord Stream 1 pipeline, the main supply route, in June and cut them off completely over a month ago. The pipeline has since been damaged by underwater explosions.
Germany got a bit over a third of its gas supplies from Russia before the supply disruptions started, and previously more than that.