By Geoffrey Smith
Investing.com -- The German government said it will throw up to 200 billion euros at bringing down sky-high gas and electricity prices, its latest tactic in what Finance Minister Christian Lindner called an "energy war" with Russia.
The federal government has authorized up to 200 billion euros in borrowing by the Economic Stabilization Fund, a vehicle set up originally to help the economy absorb the shock of the coronavirus pandemic. It will use the available funds, among other things, to compensate gas importers and suppliers for the losses they incur in being unable to pass on the price of gas that they buy internationally on to their domestic consumers.
"Germany is showing its financial power in an energy war," Lindner said in a joint press conference with Chancellor Olaf Scholz and Economy Minister Robert Habeck.
"Prices must come down, that is our conviction," Scholz said in his opening remarks. "We are setting up a big defensive shield to bring them down."
As a result, the government is abandoning its previous plans to impose a levy on customers' bills that had provoked public anger at a time when inflation is running at its highest level in over 40 years. The Federal Statistics Office said earlier that consumer prices were 10% from a year earlier in September, as this year's surge in energy prices took root ever more broadly in Europe's largest economy.
Berlin's steps are part of an increasing pattern in Europe that is seeing governments put the burden of this year's energy price surge onto future taxpayers through a big increase in current borrowing.
In the last couple of weeks, both the U.K. and France have proposed similar schemes, but the cost of Germany's is much larger, not just because of the size of its economy but also because it is suffering more than the other two from the loss of Russian gas supplies due to the war in Ukraine.
As with the other two schemes, the German scheme risks keeping demand at levels that may be unsustainable, given the loss of Russian supplies, which typically accounted for around a quarter of Europe's total before the war. While the continent has made progress in replacing them with more supply from Norway, North Africa, and liquefied natural gas from the U.S. and elsewhere, analysts warn that it doesn't have enough import capacity to offset the Russian losses completely.