Germany’s gas-price ‘defence shield’: problems and redeeming features

Summary:

On 29 September, Germany announced a €200 billion economic defence shield, or set of measures to tackle rising gas prices. Three things are new about the package. First, it involves a much larger fiscal commitment than previously (a German package announced on 7 September amounted to €65 billion, mostly financed through levies, not new borrowing).

Second, a new support measure, named the gas price brake, is intended to reduce average gas prices. This was mentioned in the previous package, but details are now to be fast-tracked, by end-October. According to preliminary estimates, the measure would cost between €15-€24 billion if applied to private households only.

Third, a plan to introduce a levy on all gas consumption of €0.027 per kilowatt hour as of 1 October has been scrapped as no longer needed, in the words of Chancellor Olaf Scholz. Support for struggling importers that lost contracts with Gazprom will instead come from the new fund.

The €200 billion defence shield risks undermining European solidarity. This could be avoided by designing it well.