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Germany introduces €200 billion gas price cap to counter Russia’s ‘energy war’

BERLIN — The German government will take on €200 billion in fresh debt to implement a gas price cap aimed at shielding consumers and companies from high energy costs, Chancellor Olaf Scholz announced Thursday.

“The German government will do everything in its power to bring [energy] prices down,” Scholz said at a press conference. “We are now putting up a large defensive umbrella … which we will endow with €200 billion.”

The announcement followed days of negotiations between the Social Democratic chancellor, Economy Minister Robert Habeck from the Greens and Finance Minister Christian Lindner from the liberal Free Democrats on how to respond to what Lindner described as an “energy war” launched by Russia.

Under the proposed scheme, the state will set a limit for gas prices and pay the difference between that cap and what gas importers pay on the world market. Major German energy suppliers like Uniper have found themselves in severe financial straits after Russia halted gas supplies to Germany, as it forced them to compensate for missing volumes with expensive last-minute purchases on the world market.

The government previously planned to compensate suppliers for the increased import costs using a gas price surcharge to be paid by customers. But the scheme, which would have increased energy bills for many households and companies, faced strong backlash and became increasingly politically untenable.

The current plan for a gas price cap will require taking on large amounts of new debt — also a politically sensitive issue, with Lindner previously insisting that Germany must adhere to its constitutionally enshrined debt brake next year.

Under the proposed compromise, the government will use a derogation to finalize the gas price cap via a special fund that falls outside the debt brake rule.

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