The Business Times

Scholz fails to deliver steps to ease Germany’s power crisis

Published Wed, Aug 31, 2022 · 09:25 PM

CHANCELLOR Olaf Scholz’s Cabinet ended a two-day retreat without clear path to control surging energy costs, losing precious time as Russia escalates the crisis by curbing supplies.

Hours after Gazprom again halted the key Nord Stream gas pipeline for maintenance, Scholz’s three-party coalition asked for more time to finalise initiatives to ease pressure on consumers and businesses in Europe’s largest economy. 

“It’s not only about the question of energy security, but also about prices,” Scholz said after the gathering in Meseberg north of Berlin. The goal is “to make sure that the prices don’t shoot through the roof.”

Germany faces an unprecedented energy squeeze as Russia clamps down on deliveries in retaliation for sanctions following its invasion of Ukraine. The government is wrangling over a multi-billion-euro relief package, as concerns mount over the risks of blackouts, rationing and a severe recession if Russia halts supplies completely. 

Finance Minister Christian Lindner said the government has room of a single-digit billion-euro amount this year, and that more than 10 billion euros (S$13.9 billion) are available together with Germany’s 16 states in 2023. Scholz’s coalition government has already implemented two relief packages with measures valued at more than 30 billion euros this year. 

Tensions in the coalition were riding high heading into the Meseberg meeting amid sniping over a bungled effort to pass on higher costs for importing natural gas from other suppliers to all consumers. Economy Minister Robert Habeck has vowed to close loopholes in a planned gas levy to ensure only companies impacted by Russia’s energy squeeze can benefit from the funds. 

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The coalition parties, which consist of Scholz’s Social Democrats, Habeck’s Greens and Lindner’s Free Democrats, plan to convene over the weekend if policy proposals advance enough before then.

“It’s about putting together a very carefully, very precise, very tailored relief package” for companies and consumers, Scholz said. “We will conclude the works soon.”

Among the proposals to keep a lid on ballooning gas, heating and power bills is the introduction of some sort of price cap. Another instrument under consideration is the introduction of a windfall tax on profit achieved by energy companies and utilities not directly affected by soaring import costs for natural gas.

Lindner reiterated his scepticism toward a windfall profit tax, pointing to the complexities of making such an instrument legally viable. Habeck opposes a blanket price cap on natural gas or electricity because it would send the wrong signal to companies and households, namely that there is enough gas available and that efforts to curtail consumption aren’t required.

Instead, the coalition is looking at a more nuanced proposal to introduce a power-price ceiling for lower-income families and the unemployed, while more affluent consumers would continue to pay prices set by free market forces, Habeck said.

Scholz reiterated that he expects European Union member states to quickly agree on changes to the existing power-market design, whereby huge production costs of gas-fired power plants determine electricity costs for all consumers and companies.

“In the past, there was a very skeptical debate whether it actually made sense to touch the power-market design,” Scholz said. “This scepticism is gone and everybody is on board. The pressure is so huge that I’m really confident that it can happen quickly.” BLOOMBERG

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