Hi Remco, with the package the German government is helping citizens and companies. How serious is the situation there?
‘It is somewhat comparable to what is going on in the Netherlands. The gas price has gone through the roof here too. You now pay 35 cents per kWh of gas, a year ago it was only 6 cents.
‘Here too, people have permanent contracts that are now expiring and are becoming variable. I recently spoke to someone who went from a gas bill of 120 euros to more than 400 euros per month. In addition, Germany has an energy-intensive industry that is severely affected by rising prices.’
What exactly does the German government want to do with the 200 billion euros?
‘First of all, it is important to know that it is not the case that they transfer 200 billion euros in aid to the population. It is a maximum budget that they have set aside to offset the price increases through 2024.
‘They want to do that with a price ceiling. Its exact height and shape is still unknown. They will be talking about that in the coming weeks. But it could well be that the Germans choose the Dutch model and go for both a maximum price and a consumption ceiling.
‘That ceiling must then apply until the winter of 2024. In this way, the German government hopes to offer certainty in the long term. By that time, it is the intention that Germany and Europe will largely no longer be dependent on Russian gas. Economy Minister Robert Habeck has emphasized that other saving advice, such as lowering the thermostat, will of course also continue to apply.’
Where does the German government, known for its budget discipline, get that money?
‘The Germans do indeed have a so-called Scheldt Bremse (debt brake, red.), which means that the budget deficit should not exceed 0.35 percent of Germany’s gross domestic product (GDP). It must prevent the national debt from rising too far. The government will have to borrow the 200 billion euros, which means higher debt.
“To get around that rule, the government is putting this 200 billion in an emergency fund that was set up earlier because of the corona crisis. This fund is separate from the regular budget, which means that the debt brake does not apply. Another advantage is that there is still 67 billion left of the corona money. As a result, only 130 billion is needed, which is of course still a substantial amount.
‘Expenditures are in line with a trend. Recently, the government has already taken several costly measures. There was a reduction in excise duty on fuel, in the summer there was the well-known 9-euro ticket for public transport and from 1 October there would be a levy on gas to spread the burden. The latter plan is now canceled and will be replaced by the support package.’
Why is the plan for the energy tax suddenly shelved?
‘In recent months, it has been about little else in Germany than that Umlage. Consumers would pay a levy of 2.4 cents per kWh of gas to accommodate gas importers, who have higher purchase prices. The idea behind it was to share the burden fairly.
“There was a lot of criticism about that. There are also energy companies that make substantial profits due to rising prices, citizens would co-finance those profits with the levy. But the biggest problem was that the plan was already outdated before implementation. Prices have soared that the 2.4 percent levy was no longer enough, causing the popularity of responsible minister Habeck to plummet. This new plan must offer a solution that is not immediately obsolete by price increases.’
Can Germany tackle the energy crisis with this plan?
‘It is very interesting to see what words the German government chooses to promote this plan. It is clear language: there is an energy war, we are defending ourselves. The government emphasizes how economically strong Germany is. So not only do they want to tackle the energy crisis, it is also a response to the Russian invasion of Ukraine and Russia’s actions against Germany.
‘Everything is geared towards trust. It is also a smart plan in that respect, because by reserving a substantial amount for a long time, you make it clear that the government will continue to support industry and consumers. That is also the message of Finance Minister Lindner. He says, especially to the business community: have faith, don’t fire people and above all keep producing. We’ll make sure it’s all right.’