Germany announces $64.7b plan to bring down soaring inflation

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 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.

Meanwhile, Germany’s government will use income from windfall taxes to lower end-consumer prices for gas, oil and coal, German Chancellor Olaf Scholz said on Sunday, announcing measures to mitigate the impact of rising energy prices on its population.

Scholz said the government plans to tie certain social benefits to the current or expected inflation rate in the future and will earmark 1.5 billion euros ($1.49 billion) for a discounted public transportation offer.

The measures are part of a 65-billion-euro package the ruling coalition government agreed on Sunday to help citizens and companies struggling with rising inflation in Europe’s biggest economy.

Italy’s EU funding plan: Italy should not take on more debt to respond to the energy crisis but it should be able to amend its European Union-backed recovery programme to ease pressures, Brothers of Italy leader Giorgia Meloni said on Sunday.

Meloni’s party is the largest in a centre-right alliance on course for victory in a Sept. 25 national election.

There are concerns that a new government might shy away from some of the reforms needed to ensure Italy gets access to some 200 billion euros ($199 billion) in EU funds for its post-COVID Recovery and Resilience Plan (PNRR).

“It can’t be heresy to say that the PNRR, which was written before the current situation, can’t be modified. It’s set out in the rules of the PNRR,” Meloni told the Ambrosetti Forum business conference.

She suggested a small part of the funds might be diverted towards supporting measures such as decoupling the price of electricity from gas prices at a local level to help Italian consumers.

Matteo Salvini, leader of the League Party that is also a member of the centre-right alliance, said action was needed now to help Italian businesses and households.

“The problem is now. Life is now, survival is now,” he told the same meeting in northern Italy.

“October is late, November is late,” he added, suggesting Italy should look at copying a 65 billion euro package adopted by Germany on Sunday.