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Germany Unveils €200 Billion Package To Cap Soaring Energy Costs

The German government has announced that it will ditch earlier plans for a gas levy on consumers and instead will introduce a gas price cap to curb soaring energy bills, with German Chancellor Olaf Scholz setting out a €200 billion ($194 billion) "defensive shield" to protect companies and consumers against the impact of soaring energy prices.

"The German government will do everything in its power to bring [energy] prices down. We are now putting up a large defensive umbrella ... which we will endow with €200 billion," Scholz said at a press conference in Berlin, which he attended virtually due to a Covid-19 quarantine.

The announcement was the culmination of days of negotiations between the Economy Minister Robert Habeck from the Greens and Finance Minister Christian Lindner from the liberal Free Democrats.

"This decision is a crystal clear answer to [Russian President Vladimir Putin]. We are economically strong, and we mobilize this economic strength when necessary,'' Lindner has declared at the press conference.

Europe's biggest economy is currently grappling with surging gas and electricity costs occasioned by a collapse in Russian gas supplies to Europe, with Moscow blaming the crisis on Western sanctions following its invasion of Ukraine in February. 

Under the new plan, Berlin will introduce an emergency price brake on gas and electricity prices and also scrap a previously planned gas levy on consumers to avoid any further price increases. The gas levy, which was slated to come into effect from Saturday and remain in place until April 2024, was intended to help utilities cover the cost of replacing Russian supply. The government has also suspended its limit on new debt of 0.35% of gross domestic product this year. 

German gas importer Uniper has said that the country does not rule out undertaking gas rationing at some point following Russia's decision to indefinitely halt gas flows via the Nord Stream 1 pipeline. 

Uniper, Germany's biggest importer of Russian gas, says it's also considering legal action against Gazprom to compensate its shareholders for a 90% drop in the company's market value following a sharp drop in Russian gas supply since June.

By Alex Kimani for Oilprice.com

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Alex Kimani

Alex Kimani is a veteran finance writer, investor, engineer and researcher for Safehaven.com.  More