German Cabinet to Approve Fuel Price Discount Amid Rising Energy Costs
Government Measures and Economic Impact
By Christian Kraemer and Maria Martinez
Approval and Implementation of Fuel Price Discount
BERLIN, Sept 21 (Reuters) - The German government plans to approve its planned gasoline price discount on Monday and introduce it on October 1, a finance ministry spokesperson said.
The corresponding draft bill was finalised over the weekend and should be passed by both houses of parliament later this week, the spokesperson said.
Political Context and Pressure
The government had been under pressure to act fast ahead of elections held on Sunday in Berlin and in the northeastern state of Mecklenburg-Western Pomerania, where Chancellor Friedrich Merz's conservative party suffered its worst regional election defeat in postwar Germany.
Details of the Fuel Price Discount
The government announced on Friday that it will cut taxes on gasoline and diesel by €0.17 ($0.20) per litre, days after Merz promised relief for consumers and businesses hit by soaring fuel prices.
Financing the Discount
A finance ministry spokesperson said during a regular government press conference that the goal is to recoup that money through a tax on excess profits generated by energy companies.
Debate Over Windfall Tax and Coalition Tensions
European Union finance ministers discussed on Friday whether to impose an EU-wide windfall tax on energy companies benefiting from a surge in oil and gas prices following the closure of the Strait of Hormuz, with further talks expected in October.
German Finance Minister Lars Klingbeil of the junior coalition partner Social Democrats has repeatedly called for a windfall tax, while Economy Minister Katherina Reiche and Merz from the conservative CDU rejected the idea.
The dispute illustrates growing divisions among coalition partners that threaten the coalition's reform agenda aimed at reviving Germany's economy.
Second Round of Relief Measures
Cost and Economic Context
SECOND ROUND OF RELIEF
The fuel rebate will cost federal and state governments a combined total of approximately €2.5 billion.
Oil futures have climbed back above $100 a barrel, about 50% higher than before the Iran war, as escalating attacks across the Middle East threaten more supply routes. Derivatives markets suggest traders do not expect a near-term drop in prices.
Additional Relief Initiatives
As the Middle East conflict shows no signs of easing, the German government has been forced to initiate further relief measures for consumers and companies, trying to contain public discontent and the rise of the far-right.
Germany approved in April a tax-free relief bonus of up to €1,000 for workers and a fuel discount for May and June as part of a package to cushion the impact of higher petrol prices.
Impact on Inflation
The fuel price relief for consumers and businesses cost €1.6 billion and, during the two months it was in effect, inflation eased.
However, inflation rose again in July as the government’s rebate expired, with energy inflation rising to 8.3% from 3.4% in the previous month.
Exchange Rate and Reporting Credits
($1 = 0.8709 euros)
(Reporting by Christian Kraemer and Maria Martinez, additional reporting by Thomas Seythal, editing by Friederike Heine and Susan Fenton)
