BERLIN - The German government announced a US$65 billion (S$91.1 billion) relief package Sunday to help ease the burden on citizens facing soaring inflation and surging energy costs that have worsened with Russia’s invasion of Ukraine – and have sent European leaders scrambling to prepare the continent for winter.
The package is the third and largest announced by Chancellor Olaf Scholz’s coalition as part of its response to the energy crisis resulting from the war in Ukraine, which prompted Western countries to impose harsh sanctions against Moscow and pledge to reduce purchases of Russian oil and gas.
With energy prices soaring as Europe tries to wean itself off Russian fossil fuels, and an emergency meeting of European Union energy ministers planned for this week, leaders are racing to implement stopgap measures as fall and winter loom. France is embarking on its biggest conservation effort since the 1970s oil crisis.
On Sunday, Liz Truss, the front-runner to become Britain’s new prime minister, said she would “act immediately” to deal with soaring energy costs if elected.
Berlin announced its package two days after Gazprom, the Kremlin-controlled Russian energy giant, announced an indefinite halt to the Nord Stream 1 pipeline that terminates in Germany and provides gas to much of Europe. Gazprom said that problems had been found during inspections, and that the pipeline would be closed until they were eliminated, giving no timeline for the resumption of the gas flow.
German officials have said the move is politically motivated, and it came on the same day that finance ministers for the Group of 7 countries agreed to impose a price cap on Russian oil in an effort to cut off some of the energy revenue that Moscow continues to earn from Europe.
With the latest German relief package – once approved by Parliament, which is all but guaranteed – the government will have spent about US$95 billion on economic aid measures since Russia’s invasion in February, one of the largest such programs among industrialised nations.
Berlin plans to fund the latest measures with a windfall tax targeting companies whose profits are rising as a result of the energy crisis.
“Our country is facing a difficult time,” Scholz told a news conference in Berlin, promising that “no one will be left behind.” As Europe’s largest economy, Germany is among the worst affected by the energy crisis rippling across Europe, where natural gas costs about 10 times what it did a year ago.
Among the measures that Germany unveiled include one-time payments to households, tax breaks for energy-intensive industries and cheaper public transportation options. It also announced plans for an electricity “price brake,” subsidized by the windfall tax, that would guarantee citizens a certain amount of electricity at a lower cost. Consumption beyond that would be priced higher.
The windfall tax would be levied on energy companies that benefit from the rising energy prices during the gas crisis – mainly producers of coal, nuclear and renewable energy.
German officials have worried for months that soaring costs could trigger social upheaval. Left-wing and far-right groups have promised to begin weekly demonstrations against Scholz’s center-left coalition. Some unions have threatened to take to the streets, with one labor group calling the measures announced Sunday only a “half step.”
Last week, Germany’s energy minister said the country was in a relatively good position despite energy concerns, having managed to fill its gas storage facilities to over 80% capacity, thanks to preparations that started shortly after Russia invaded Ukraine.
Germany has also slashed its reliance on energy from Russia, which provided more than half its gas imports before the war, a figure that dropped to less than 10% in August.