Germany's energy crisis is not over yet

Germany's energy crisis is "certainly not over", with high natural gas prices still putting a strain on the country's economy , Chancellor Olaf Scholz told lawmakers.

Germany was one of the countries hardest hit when Russian gas supplies via pipeline to Europe were squeezed last year.

Supply disruptions have pushed up energy costs further and forced Berlin to spend billions of euros to ease the burden on consumers and businesses from soaring electricity and gas bills.

Germany is the only G7 country whose economy the IMF predicts will shrink this year.

World - Germany's energy crisis is not over yet — Chancellor Olaf Scholz speaks to the German Parliament (Bundestag), November 28, 2023. Photo: Shutterstock

Although gas prices in Europe are still higher than pre-crisis levels, they are still below the price ceiling set by the German government , making it possible to phase out energy subsidies next year, Scholz said in a speech to the German parliament (Bundestag) on November 28.

Gas storage is so full these days that there is unlikely to be a sudden spike in prices this winter, he said. “However, if energy prices suddenly rise again, we are ready to take countermeasures at short notice.”

Chancellor Scholz's government is also facing another budget crisis following a shocking ruling by the Federal Constitutional Court.

The ruling means tens of billions of euros in “special funds” – including those used to reduce energy bills for households and businesses – will have to be included in the regular federal budget.

World - Germany's energy crisis is not over yet (Figure 2). — Following a ruling by the German Federal Constitutional Court on November 15, 2023, the “special funds” will have to be included in the regular federal budget. Graphics: Bloomberg

Overcoming internal rifts, the ruling “traffic light” coalition – made up of Chancellor Scholz’s center-left Social Democratic Party (SPD), the pro-business Free Democratic Party (FDP) and the Greens – on November 27 approved a supplementary budget for 2023, which includes suspending rules limiting net new borrowing, the “debt brake,” for the fourth consecutive year.

By suspending the “debt brake”, the German government can borrow about 45 billion euros more in an effort to escape a budget crisis that has spread, raising warnings about growth and shaking the backbone industry of Europe's No. 1 economy.

The new loan will not fully plug the €60bn budget gap left by the court ruling, but Mr Scholz's government says it will be enough to cover all commitments .

Minh Duc (According to Bloomberg, Reuters)

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