German Chancellor Friedrich Merz once had a reputation as a fiscal conservative. Once he was elected this year, though, he discovered that many things in the country need fixing, including its renowned industrial sector. Now his government is exploring ways to fund multibillion-euro subsidies for the most energy-intensive companies. While this might buy time, it won’t fix the grave mistakes that have caused Germany’s economic crisis.
According to a report this weekend by the Financial Times, Berlin wants to spend €4 billion on reducing companies’ electricity bills, with the government paying up to half of the costs for them. Currently, 350 companies are eligible — but German Economy Minister Katherina Reiche wants to extend this to 2,200, according to the FT.
Reiche and Merz hope to get this past the EU’s rules on state aid, arguing that the entire eurozone will benefit if its largest economy recovers. Germany was the only G7 economy which failed to grow for the last two years, and might be in for a third year of stagnation. Something has to be done, but energy subsidies are, at best, an interim measure while the government works on fixing the underlying problems. Chief among these is the self-inflicted energy crisis.
Despite weaning itself off Russian fossil fuels, Germany remains extremely dependent on imports, which make up around two-thirds of the energy it consumes. A massive expansion of the renewable sector was supposed to scale that back, but wind and sunshine are, by definition, unpredictable. In the first quarter of this year, Germany produced most of its electricity from fossil fuels due to a lack of wind.
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