BERLIN (AP) — Germany's governing coalition has reached a consensus to subsidize energy prices for heavy industry over the next three years, as part of efforts to revitalize the nation's persistently sluggish economy, which is impacting overall European performance. Chancellor Friedrich Merz announced that coalition leaders decided on Thursday to implement a fixed electricity price of approximately 5 euro cents (6 U.S. cents) per kilowatt hour starting January 1 and lasting through 2028. This initiative aims to support energy-intensive companies facing international competition.
Merz indicated that discussions with the European Union's executive commission regarding the plan are nearing completion, expressing confidence in obtaining the necessary approvals for implementation. Germany, as Europe’s largest economy, has seen a decline over the past two years, with little indication of growth in recent times. Merz’s coalition government, which includes the center-left Social Democrats, has prioritized economic revitalization since taking office in early May.
However, tangible results remain elusive. The German economy stagnated in the third quarter, with the government’s panel of independent economic advisers projecting a modest growth rate of only 0.9% for the next year, following a mere 0.2% increase this year. The economic stagnation can be attributed to various challenges such as elevated energy costs, intense competition from Chinese manufacturers in automotive and industrial sectors, a shortage of skilled labor, and an overburdened bureaucratic system.
To address these issues, the government has initiated a program aiming to stimulate investment, including establishing a substantial fund of 500 billion euros ($581.4 billion) dedicated to improving the nation’s aging infrastructure over the next 12 years. The coalition has also committed to reducing bureaucratic hurdles and hastening the country's digital transformation.
Carsten Brzeski, an economist at ING, noted that the proposed subsidy could serve as a strong signal, potentially providing both immediate relief to industries and a sense of clarity and stability in the long term. Meanwhile, Holger Lösch, deputy managing director of the Federation of German Industries, expressed optimism that the subsidized energy price would help particularly energy-intensive sectors, enabling them to maintain competitiveness in the global market. He emphasized the importance of the EU allowing Germany the flexibility needed to alleviate costs for numerous companies.
Finance Minister Lars Klingbeil estimated that the financial implications of this measure would be between 3 and 5 billion euros ($3.4 billion to $5.8 billion). Additionally, coalition leaders have agreed to reduce a tax on airline tickets starting in July, a long-standing request from the aviation sector. The implementation of these measures will be contingent upon obtaining parliamentary approval.
This package of financial relief and structural reforms signifies the coalition’s determination to address the economic challenges facing Germany and enhance its industrial competitiveness in a challenging global environment.
