With the war in Ukraine and the boycott of Russian energy, powerful German industry has fallen into crisis for several months. The government announced Thursday, November 9, a massive plan to counter the surge in prices and promote recovery.
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Until the outbreak of war in Ukraine, Germany depended on cheap Russian gas for energy. The war put an end to this channel and, since then, manufacturers across the Rhine have suffered particularly high electricity prices, among the highest in Europe. The support from the government presented on Thursday, November 9, will be through massive tax cuts and subsidies. Olaf Scholz decided to release the heavy budget weapon.
Nearly 30 billion euros over five years
The aid project presented by Prime Minister Olaf Scholz firstly plans to significantly reduce the tax on electricity paid by all industrial companies, to bring it down to the European minimum of 0.05 cents per kWh. . This is a cost for public finances, and therefore the German taxpayer: three billion euros per year until 2028.
Another system: 5.5 billion euros released in 2024 to reduce the fees paid by companies to electricity network managers. The total until 2028 amounts to 28 billion, including 12 billion in 2024 alone.
Political disagreements
If the employers are satisfied, it is complicated to reach an agreement in a coalition government which mixes greens and liberals. It took many weeks to reach a compromise. For their part, the unions criticize the fact that tax reductions are not linked to compensation imposed on companies in terms of wages and sustainability of employment.
As for the very rigorous and severe German Constitutional Court, it could call into question the budgetary sleight of hand on the grounds that the funds released were initially intended to deal with the Covid pandemic in 2020. This argument is invoked by the opposition. Despite everything, this aid plan has a strong chance of seeing the light of day in full.
Berlin believes that it is urgent to act because the industry crisis is causing the country’s entire economy to plunge. Unlike France and some of its partners on the “old continent”, Germany will be in recession this year with a decline in its GDP of 0.4%. Europe’s former economic powerhouse is expected to be the only G7 state – the seven most industrialized countries on the planet – to record a fall in national wealth this year.