Germany’s half-a-trillion dollar energy bazooka may not be enough

Germany is bleeding cash to keep the lights on. Almost half a trillion dollars, and counting, since the Ukraine war jolted it into an energy crisis nine months ago. That’s the cumulative scale of the bailouts and schemes the Berlin government has launched to prop up the country’s energy system since prices rocketed and it lost access to gas from main supplier Russia, according to Reuters calculations. And it may not be enough. “How severe this crisis will be and how long it will last greatly depends on how the energy crisis will develop,” said Michael Groemling at the German Economic Institute (IW).

“The national economy as a whole is facing a huge loss of wealth.” The money set aside stands at up to 440 billion euros ($465 billion), according to the calculations, which provide the first combined tally of all of Germany’s drives aimed at avoiding running out of power and securing new sources of energy. That equates to about 1.5 billion euros a day since Russia invaded Ukraine on 24 February. Or around 12 per cent of national economic output. Or about 5,400 euros for each person in Germany. Europe’s preeminent economy, long a byword for prudent planning, now finds itself at the mercy of the weather. Energy rationing is a risk in the event of a long cold spell this winter, Germany’s first in half a century without Russian gas. The country has turned to the pricier spot, or cash, energy market to replace some of the lost Russian supplies, helping drive inflation into double-digits. There’s no security in sight either, with the push to build up of two alternatives to Russian fuel - liquefied natural gas (LNG) and renewables - years away from targeted levels.

The more costly power will be painful indeed for an economy already forecast to shrink the most among G7 nations next year, according to the International Monetary Fund. Germany’s energy import bill will grow by a combined 124 billion euros this year and next, up from growth of 7 billion for 2020 and 2021, according to data provided by the Kiel Institute, presenting a major challenge for the country’s energy-intense industries. The country’s chemicals sector, the most exposed to rising power costs, expects production to fall by 8.5 per cent in 2022, according to industry association VCI, which warns of “huge structural breaks in Germany’s industrial landscape”. (Source Reuters)