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Half a trillion dollar energy bazooka may not be enough

Half a trillion dollars of energy bazooka may not be enough for Germany, which is in the grip of the energy crisis, not to surrender to the darkness.

Germany, the dynamo of the European economy, spends a lot of money to make the lights dim.

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At the heart of the energy crisis, Germany has spent almost half a trillion dollars since the Ukraine war plunged the country into an energy crisis nine months ago. And he continues to spend. 

That’s the total scale of bailout plans the Berlin government has launched to bolster the country’s energy system since prices skyrocketed and the main supplier lost access to gas from Russia, according to Reuters’ calculations. And that may not be enough.

‘We are facing a huge loss of wealth’

“How severe this crisis will be and how long it will last depends largely on how the energy crisis will unfold. The national economy as a whole is facing a huge loss of wealth,” said Michael Groemling of the German Economic Institute (IW).

 

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The money set aside amounts to up to 440 billion euros ($465 billion), according to calculations that present the first collective tally of all Germany’s attempts to prevent energy depletion and secure new energy sources.

Additional charge of 5400 euros for each citizen

That equates to around 1.5 billion euros a day since Russia invaded Ukraine on February 24. Or about 12% of national economic output. This translates to around 5,400 euros for each person in Germany.

Long known for prudent planning, Europe’s leading economy now finds itself at the mercy of the weather. This winter, which is Germany’s first winter without Russian gas in half a century, is a risk in case of a long cold period.

The country turned to the more expensive spot or cash energy market to replace some of its lost Russian supply, which helped boost inflation to double digits. There is no security in sight either, as two alternatives to Russian fuel, liquefied natural gas (LNG) and renewable energy sources, are years away from target levels.

“The German economy is at a very critical stage right now because the future of energy supply is more uncertain than ever before,” said Stefan Kooths, Vice-President of the Kiel Institute for the World Economy and Research Director for Business Cycles and Growth.

The bill will rise to 124 billion euros

Germany’s energy import bill will increase by a total of 124 billion euros this year and next year. €7 billion growth for 2020 and 2021 poses a major challenge for the country’s energy-intensive industries.

The chemical sector, which is most exposed to rising energy costs, expects production to fall by 8.5% in 2022, according to the industry association VCI, which warned of “major structural breaks in Germany’s industrial structure”.

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