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German Finance Chief Sounds Alarm on Soaring Power Prices

·3 min read

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German Finance Minister Christian Lindner said the government needs to address soaring power prices “with the utmost urgency,” as a leading economist warned of a “gigantic shock” looming for Europe’s biggest economy.

In an interview with Bild am Sonntag newspaper, Lindner said swift action is required or “inflation will be increasingly driven by an electricity crisis.” The power market should be overhauled so that prices are no longer coupled to ever-more expensive gas, generating billions of euros in profits for operators of wind, solar and coal facilities “at the expense of consumers,” he added.

Russia’s invasion of Ukraine has pitched Europe into its worst energy crisis in decades, with surging gas and electricity costs stoking inflation, undermining the euro and threatening to drag economies into recession.

Amid warnings of blackouts and social unrest this winter, Europe’s politicians have earmarked about 280 billion euros ($279 billion) to ease the pain for businesses and households, but the aid risks being dwarfed by the scale of the emergency.

Sebastian Dullien, director of the IMK economic research institute, said some members of Chancellor Olaf Scholz’s government don’t appear to have grasped the scope of the threat, warning that “Germany is facing a gigantic macroeconomic shock.”

According to a “conservative” estimate by the Dusseldorf-based institute, companies, households and the state will have to shoulder an extra burden of more than 200 billion euros next year, or about 5% of gross domestic product, Dullien said Friday in a series of tweets.

The energy crisis will be high on the agenda when Scholz and his ministers meet for a two-day cabinet retreat outside Berlin starting Tuesday. The ruling coalition is considering imposing some form of windfall tax on energy companies, officials told Bloomberg last week.

The Czech Republic, which holds the European Union’s rotating presidency, said Friday it will call an emergency meeting of the bloc’s energy ministers to discuss potential solutions to the crisis.

Surging power prices are the result of a “market failure,” Czech Prime Minister Petr Fiala said, and called for an EU-wide measure to cap them. He is seeking backing for the idea among other member states and plans to discuss possible price limits with Scholz at talks in Prague on Monday.

Stephan Weil, the premier of the region of Lower Saxony and a member of Scholz’s Social Democratic Party, said Sunday that the situation is “worrying” and called for “rapid and resolute intervention by the state.”

If a European solution cannot be agreed in the short term, “a suspension of electricity trading and temporary price regulation by the state” should be considered, Weil, who is running for re-election in October, said in an emailed statement.

In the longer term, German Economy Minister Robert Habeck wants to overhaul the power market to decouple the price customers pay from gas prices, Handelsblatt newspaper reported Friday, citing a ministry spokeswoman.

(Updates with Weil comments from from 10th paragraph)

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