Germany to impose gas price cap to counter Russia's energy war

  • September 29, 2022
Germany to impose gas price cap to counter Russia's energy war

The German government will take on 200 billion euros of new debt to implement a gas price cap aimed at protecting consumers and companies from high energy prices, German Chancellor Olaf Scholz announced Thursday, Politico reported.

The announcement came after days of talks between the chancellor, Economy Minister Robert Habeck and Finance Minister Christian Lindner.

This decision is a crystal clear answer to Russian President Vladimir Putin, Lindner told a news conference. 

Under the proposed scheme, the government would set a cap on gas prices and pay the difference between that cap and what gas importers pay on the world market. Germany's largest energy suppliers, such as Uniper, have found themselves in dire financial straits after Russia cut off gas supplies to Germany, forcing them to make up the shortfall by making costly last-minute purchases on the world market.

Previously, the government had planned to compensate suppliers for increased import costs with a surcharge on the gas price to be paid by consumers. According to Scholz, this scheme, which would have led to higher energy bills and caused a strong reaction, will now be canceled.

The current plan to cap the price of gas would require raising a lot of new debt, which is also a politically sensitive issue, since Lindner had previously insisted that Germany must stick to a constitutionally mandated debt brake next year.

Under the proposed compromise, the government would use the derogation to finalize the gas price cap through a special fund that is not subject to the debt brake rule.

The government would use the economic stabilization fund, which was originally created to mitigate the effects of the coronavirus crisis.

The finance minister also rebuked the new U.K. government, which last week announced a mini-budget that caused the pound to collapse to historic lows against the dollar and led to a surge in borrowing costs.

German businesses and households must further reduce their gas consumption as Germany wages economic war with Russia, German government ministers said, Reuters reported.

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