Germany Announces Another €65BN Energy Stimulus Even As ECB Seeks To Crush Demand
In a time when the ECB is doing everything in its power to halt and reverse Europe’s energy hyperinflation by crushing demand as it hikes rates so high it will lead to widespread unemployment and recessions, oblivious of the political blowback such a move will spark, Europe’s politicians are doing just the opposite, and are again quietly flooding the system with billions of fiatscoes, knowing too well they all be political cadavers should tens of millions of Europeans freeze in the coming winter.
Which is why a few just days before the ECB is expected to hike rates by as much as 75bps, the German government on Sunday unveiled its third (so far) and latest multi-billion euro plan to help households cope with soaring prices, and said it was eyeing windfall profits from energy companies to help fund the relief. With this latest move – which will ensure energy firms spend even less on future capacity and growth capex – Germany has just obviated all of the ECB’s tightening efforts, similar to what the Biden admin is doing in the US.
Powell: pain is coming; we are going to crush demand.
Biden: midterms are coming, we are going to boost demand, discharge debt and come up with stimmies and new definitions
— zerohedge (@zerohedge) August 26, 2022
Ass France 24 reports, with German businesses and consumers reeling from the pain of sky-high energy prices, as Europe’s biggest economy seeks to extricate itself from reliance from Russian supplies in the wake of Moscow’s invasion of Ukraine, Chancellor Olaf Scholz unveiled another €65 billion “inflation fighting” stimulus package (yes, when it comes to printing money to crush inflation, Europe is just as smart as the US), announcing rapid measures to prepare for the coming cold season will ensure that Germany would “get through this winter.”
The latest agreement, which brings total relief to almost 100 billion euros since the start of the Ukraine war, was hammered out overnight into Sunday by Germany’s three-way ruling coalition of Scholz’s Social Democrats, the Greens, and the liberal FDP.
Among the headline measures are one-off payments to millions of vulnerable pensioners and a plan to skim off energy firms’ windfall profits. In short, creeping nationalization of the energy sector.
The government had made “timely decisions” to avoid a winter crisis, Scholz said, including filling gas stores and restarting coal power plants.But preventative measures, including a drive to reduce consumption, have done little to break a sharp increase in household bills.
The latest announcement follows two previous relief packages totaling 30 billion euros, which included a reduction in the tax on petrol and a popular heavily subsidized public transport ticket. But with the expiration of many of those measures at the end of August and consumer prices soaring, the government has been under pressure to provide new support.
Inflation rose again to 7.9 percent in August, after falling for two straight months thanks to previous government relief measures. The take-off in energy prices is expected to push inflation in Germany to around 10 percent by the end of the year, its highest rate in decades.
Scholz said however that not everyone is suffering from the high consumer prices. Some energy companies which may not be using gas to generate electricity were “simply using the fact that the high price of gas determines the price of electricity and are therefore making a lot of money,” he said, echoing the US wealth-redistributor-in-chief himself, who similarly is taking aim at energy company profits.
“We have therefore resolved to change the market organization in such a way that these random profits no longer occur or that they are skimmed off.”
The trimming of windfall profits would create “financial headroom that should be used specifically to relieve the burden for consumers in Europe,” the government said in its policy paper. The move could potentially bring “double-digit billions” of euros in relief, finance minister Christian Lindner estimated in the press conference.
It’s wasn’t immediately clear if Germany had any idea just how catastrophic a message it was sending to energy companies with this latest socialist tactic, one which virtually guarantees European energy supply will collapse – after all, if the government can take your hard-earned money with the flip of a switch, why invest in growth. Of course, with Europe itself on the brink of collapse, it will cross that bridge if it ever even gets to it.
And since Germany is aware that such socialist measures may not be too popular in Germany, the Scholz government said it would push for the move to be implemented across the European Union first, before going ahead with the measure on its own.
As we reported on Sunday, Brussels on Monday said it would prepare “emergency” action to reform the electricity market and bring prices under control. Scholz said he expected the EU to “deal quickly” with the issue, adding that it was “very clear that we need rapid changes in this area”.
Repeating his mantra that Germans will “never walk alone” through the energy crisis, the chancellor unveiled a raft of measures, including a one-off payment of 300 euros to millions of pensioners to help them cover rising power bills. The government will also target students with a smaller one-time transfer of 200 euros, and an heating cost payment for people receiving housing benefits.
Berlin also set aside 1.5 billion euros for work on a successor to the wildly popular nine-euro monthly ticket on local and regional transport networks.
The relief package as a whole should be financed without planning to take on further debt, Lindner said, which of course is just another lie.
“These measures are included within the government’s existing budget plans,” covering 2022 and 2023, he said, with the remainder covered by the windfall energy profit measures. We’ll check back on that particular statement in 6 months… assuming there is still a Germany then.
As for the bigger picture for Europe, we can’t help but wonder just how it all ends when you have the central bank scrambling to contain the energy hyperinflation by crushing demand (and sending the cost of money through the stratosphere) on one hand, while on the other every European government is rapidly sending out fiscal stimmies to the locals, seemingly unaware that this is precisely what the ECB does not want to see.
ECB: we must crush demand to stop energy hyperinflation
Germany: here’s another €65BN
— zerohedge (@zerohedge) September 5, 2022