Ahead of the coming recession, consumer confidence in the eurozone and Germany has fallen to record lows in response to a surge in gas (and electricity) prices. Based on September data from Germany’s largest state, North Rhine-Westphalia, consumer gas prices have risen 74% year on year and are now 50 euros per MWh higher than before the crisis. But the transition from wholesale prices to the consumer public is far from over. Wholesale market benchmark prices of €200, reflecting the marginal price of new imports, are €180 higher than the 2015-2019 average. The excessive cost of natural gas also manifests itself in higher energy bills and higher prices for other commodities as producers pass their costs on to consumers.
On Thursday, the German government decided to increase spending and cushion the impact of natural gas prices with up to 200 billion euros in additional public spending (ie, more than 5% of annual GDP). He will most likely spend the funds within two years, but will place them in a special fund that still allows him to comply with constitutional rules regarding debt burden. He wants the government to use the money for four purposes: 1) reduce gas bills for households and businesses by capping prices on a key volume of gas consumption, 2) subsidize the cap on electricity prices for households and small and medium enterprises if taxes on “surplus profits” from cheap electricity generation (renewables, nuclear power) do not generate sufficient revenue, 3) provide capital and liquidity support to businesses that are not covered by an adequate price cap. 4) support systemically important natural gas importers when they need to replace Russian gas with more expensive alternatives. With the announcement of the new support system, the government has eliminated a tax on natural gas consumers of about 2.4 cents/kWh, which was intended to fund support for gas importers since October. However, the reduction of VAT on natural gas from 19% to 7% will continue.
* Mr. Holger Schmieding, Salomon Fiedler and Callum Pickering are economists at Berenberg Bank.
Source: Kathimerini
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