Germany vows not to follow UK down ‘risky’ economic path

theguardian.com:

Germany’s finance minister vowed he would not follow the UK “down the path of an expansionary fiscal policy”, as his government announced a €200bn fund designed to protect consumers and businesses from rising gas prices driven by Russia’s war in Ukraine.

Europe’s largest economy will reactivate an economic stabilising fund previously used during the global financial crisis and the coronavirus pandemic, said the chancellor, Olaf Scholz, at a joint press conference with the finance minister, Christian Lindner, and the economic minister, Robert Habeck, on Thursday afternoon.

“Prices have to come down, that is our conviction,” said Scholz, adding: “For them to come down we will need a big defence shield.”

Lindner, of the fiscally hawkish Free Democratic party, said the energy price package would not entail further regular borrowing, adding Germany was “expressly not following Great Britain’s example down the path of an expansionary fiscal policy”.

“This process is not risky,” he later added.

At the heart of the package is a temporary cap on electricity and gas prices, which the government says it wants to bring down “to a level where private households and companies are protected from being overloaded”. The difference between the cap and the prices paid by gas importers on the world market would be made up by the state.

In a significant U-turn, Scholz’s government is also scrapping a gas levy on consumers due to come in this Saturday. The levy was originally designed to compensate energy suppliers for the increased import costs. But after being agreed by the three coalition parties this summer, it was increasingly seen as politically toxic for rewarding some energy companies already raking in record profits.

A temporary VAT