GERMANY'S HARD WINTER

BLOOMBERG - Aug 11, 2022 - German Chancellor Olaf Scholz promised citizens a third package of financial assistance to offset surging inflation stoked by Russia’s move to cut gas supplies, while warning that the coming months will be challenging for Europe’s biggest economy.

At his inaugural summer news conference Thursday -- an open forum for questions from the media -- Scholz was keen to hammer home the message that his government has the energy crisis under control and won’t abandon citizens suffering from rising heating costs. At the same time, he made it clear that the coming winter will be tough.

“We are facing serious times, I think everyone in this country knows that,” Scholz, who took questions on a broad range of issues for more than 100 minutes, told reporters. “We will do everything we can to ensure that citizens get safely through this period,” he said, reiterating his mantra: ““You will never walk alone.”

With nearly half of German homes relying on gas for heating, the country faces potential rationing if it fails to secure sufficient reserves. The government is targeting storage facilities to be 95% full by November, compared with 73.7% as of Tuesday.

Scholz is under pressure to avert an energy shortage that would be unprecedented for a developed nation. His administration has struggled to address Germany’s reliance on Russian gas, only recently laying out targets to cut demand as efforts to secure alternative supplies fall short.

Scholz’s government is also faced with the growing threat to Germany’s supply networks from the rapidly depleting River Rhine, a key transport link. The chancellor wasn’t asked about the dwindling water levels, or about whether the ruling coalition will agree to extend the operating life of Germany’s last three nuclear power plants.

Scholz said his government’s current borrowing plans are enough to pay for the new aid package under discussion. The ruling coalition still aims to restore a constitutional limit on borrowing next year – known as the debt brake – but finance plans could be revised if something unexpected happens, he added.

He also threw his weight behind a plan presented by Finance Minister Christian Lindner this week, which aims to adjust tax brackets to account for higher inflation. Scholz explained that he made several similar tweaks during his own time as finance minister and that it makes sense to reduce taxpayers’ burden as they struggle with higher costs.

The war in Ukraine has dominated Scholz’s tenure so far. He has moved quickly to initiate a “sea change” in German defense policy with a 100 billion-euro ($103 billion) fund to modernize the military, and he broke with tradition to send Kyiv lethal weapons to defend itself from Russia.

Scholz said that Germany would continue to send weapons to Ukraine. He added that there has been progress in talks with the Group of Seven nations about putting a price cap on Russian oil exports, saying, “We are working very hard to implement this plan.”

Scholz is under some pressure on the domestic political stage. His SPD has slipped to third in the polls and the Greens have climbed to second behind the conservative bloc, meaning there isn’t overwhelming backing for his coalition at this stage. A regional election in the SPD-led state of Lower Saxony is less than two months away.

The energy crunch has dominated Scholz’s agenda in recent months. Last week, he traveled to a facility in the Ruhr region to inspect a turbine that Russia has blamed for issues with the key Nord Stream pipeline.

In late July, he interrupted his vacation to announce a 17 billion-euro rescue package for Uniper SE, the struggling utility at the forefront of the energy standoff with Russia.

“We will bring another relief package on the way to protect citizens,” Scholz said. “People can rely on us not to leave them alone.”

Scholz was also grilled Thursday about the Cum-Ex tax scandal. He has been drawn into probes into the affair due to his former job as mayor of Hamburg. Last year, in testimony to a parliamentary inquiry, he denied influencing a controversial decision not to claim back 47 million euros in tax from lender M.M. Warburg.

He reiterated that there is no evidence of political influence and said he was looking forward to testifying again at the Hamburg parliamentary inquiry next week.

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