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Scholz promises 65 billion euros to shield Germans through tough winter

Economic Indicators Sep 04, 2022 12:31PM ET
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© Reuters. FILE PHOTO: Petrol prices are displayed at a bft petrol station one day before the fuel discount in Germany expires after a temporary reduction of the energy tax to the minimum level set by the EU came to an end in Bonn, Germany, August 31, 2022. REUTERS/
 
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By Thomas Escritt

BERLIN (Reuters) -Germany will spend at least 65 billion euros ($64.7 billion) on shielding customers and businesses from soaring inflation, Chancellor Olaf Scholz said on Sunday, two days after Russia announced it was suspending some gas deliveries indefinitely.

The measures, agreed after 22 hours of talks between the three coalition parties, included benefit hikes and a public transport subsidy, to be paid for from a tax on electricity companies and by bringing forward Germany's implementation of the planned 15% global minimum corporate tax.

Russia's invasion of Ukraine in February has led to inflation worldwide and prompted warnings of social and economic turmoil as the world weans itself off cheap energy and flexible global supply chains.

In Germany, where year-on-year inflation was running at 7.9% in August, the effect has been exacerbated by Russia's reduction in volumes of gas pumped to the country, which has caused a surge in the price of energy fuelling Europe's largest economy.

"Russia is no longer a reliable energy partner," Scholz told a news conference, adding that Germany's earlier preparations meant that it would get through the winter heating season.

Gas stores reached 85% of capacity on Saturday, almost a month ahead of schedule, partly thanks to corporate consumers cutting consumption.

But while supplies were sufficient, the government would need to help shield consumers and businesses from the higher costs, he said.

"You'll never walk alone," he added, switching to English to recite a song famously adopted by fans of English soccer club Liverpool.

The energy crunch came into sharper relief when Russia's state-controlled energy giant Gazprom (MCX:GAZP) said on Friday that it was keeping closed its main Nord Stream 1 pipeline, the biggest single pipeline carrying Russian gas to Germany.

Scholz rejected suggestions that losing the steady flows of cheap Russian gas off which Germany has prospered for dedcades could herald a new, darker era for his country.

"Germany will come through this time as a democracy because we are very economically strong and we are a welfare state: the two together are important," he told ZDF television. "With every new windpark, we will become more independent."

The latest package brings to 95 billion euros the amount allocated to inflation-busting since the Ukraine war began in February. By contrast, the government spent 300 billion euros on propping up the economy over the two years of the pandemic.

Finance Minister Christian Lindner said the 65 billion announced on Sunday could be increased if electricity prices rose further. The windfall tax - dubbed a "coincidence tax" to assuage his party's objections to the original term - would bring in revenue in the "two-digit billions", he said.

Part of the proceeds would be used to offer 1.7 billion euros in tax breaks to 9,000 energy intensive companies, a government document showed.

($1 = 1.0049 euros)

Scholz promises 65 billion euros to shield Germans through tough winter
 

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Comments (8)
Todd Gray
Todd Gray Sep 04, 2022 1:48PM ET
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if the USA opened shale and fracking oil production, there wouldn't be this problem.
Warm Camp
Warm Camp Sep 04, 2022 1:48PM ET
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Certainly, oil and esp. gas price would be lower and also US could still earn good money, while Russia would earn less. However, increase in US production requires regime change in DC, and it will take time. Enough time for Putin to bend Europe over and win the war.
Warm Camp
Warm Camp Sep 04, 2022 12:36PM ET
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If memory serves they tried something similar in Weimar Republic days. Protecting customers from inflation by printing more money. Did it work that time?
Ken Roth
Ken Roth Sep 04, 2022 9:14AM ET
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My russian friends, off course germany government will help their people with the higher cost of energy so your plan for chaos and revolt in euope is not working…too bad for you
Alex Malmstrom
Alex Malmstrom Sep 04, 2022 9:14AM ET
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You are sad beyond belief!
Gustav Mahler
Gustav Mahler Sep 04, 2022 8:26AM ET
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Hang on… 1) We’re short on energy. 2) Inflation is crippling the econony. So we decide to… 1) Confiscate cash from all the companies capable of supplying more energy (thus disincentivizing investment in energy sector necessary for expanding supply). 2) Pump tens of billions more into the already inflationary economy.Im sorry, but what in the **** is the goal here? Its as if they are intentionally seeking to exacerbate the key issues they claim to be trying to fix… 🤔
Karl Kessler
Karl Kessler Sep 04, 2022 8:26AM ET
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Yup, this is it - when the internal inconsistency of government policies finally become completely obvious. No more deep analysis required.
bert prince
bert prince Sep 04, 2022 8:26AM ET
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socialist nonsense.in order to subsidize you exproriate private capital (utilities directly and individuals via deficit/inflation/negative real rates)
Warm Camp
Warm Camp Sep 04, 2022 7:44AM ET
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Yeah, overspending more money is a sure way to fight inflation.Stupid is as stupid does.
jason xx
jason xx Sep 04, 2022 7:44AM ET
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That's why there is a windfall tax Einstein
jason xx
jason xx Sep 04, 2022 7:44AM ET
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What do you just read the headlines and make comments?
Karl Kessler
Karl Kessler Sep 04, 2022 7:44AM ET
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jason xx If it's anything like our windfall taxes, it is just rhetoric. If it isn't, it removes the incentives to increase supply. Either way, it's inflationary.
Deval Shah
Deval Shah Sep 04, 2022 6:17AM ET
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A right move at the right time.
Peter Andersen
Peter Andersen Sep 04, 2022 6:01AM ET
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Think that is dangerous let’s the people feel the pain let’s us get together this without this package
Karl Kessler
Karl Kessler Sep 04, 2022 6:01AM ET
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There is a reason for pain. It tells you when you're doing something wrong. Our leaders have been doing the wrong thing on energy for 40 years now. More pain relief, while tempting, only hides the problem yet again.
Mohammad Kalam
Mohammad Kalam Sep 04, 2022 5:42AM ET
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isn't this will further increase inflation ? Again and again they are bringing relief package ,which is again and again putting pressure on inflation and no wonder why inflation is not going down,even all Central bank are hiking rates aggressively
 
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