A gas price cap is vital, says top economist Daniel Stelter. He calls on the government to finally get down to work on credibly increasing the supply of energy in the future. In addition, politicians should flatten the gas price wave and finance the additional costs.
Germany has an economic structure that is the envy of many countries. Unlike the US, UK and France, we have managed to maintain a strong industrial sector. Almost a quarter of the gross domestic product is generated here. There is no doubt that well-paid industrial jobs are the backbone of our prosperity.
This success is all the more astonishing because the framework conditions for industry in this country have not developed positively for years: decaying infrastructure, increasingly obvious deficiencies in the education system, backward digitization, growing bureaucracy, uncompetitive taxes and duties and a climate policy that is based on it aims to push the local economy into a pioneering role by disproportionately increasing the price of energy, without examining the question of whether it can survive such a role. No wonder, then, that the industry was already in retreat before the Corona shock and preferred to invest abroad.
dr Daniel Stelter (Twitter: @thinkBTO) is the founder of the discussion forum and podcast of the same name “Beyond the Obvious”, which specializes in strategy and macroeconomics, and is a management consultant. Previously, Stelter was with the Boston Consulting Group (BCG) from 1990 to 2013, most recently as Senior Partner, Managing Director and member of the BCG Executive Committee. His current book is “A Dream of a Country: Germany 2040”.
The Russian war of aggression and the resulting drastic increase in the price of energy hit this already poor starting position. Contrary to the allegations made by the incumbent Economics Minister, German industry was not able to compete thanks to cheap energy, but in spite of relatively expensive energy. Data from the European Statistical Office clearly shows that industrial consumers in Germany were already paying more, not less, than their European competitors in the years before the war – an aspect that economist Daniel Gros points out, combined with the comment that “Germany experienced a loss of energy independence without gaining any tangible economic benefit”. The German companies then also handled gas correspondingly efficiently, as he calculates. Here, the gas intensity per GDP unit is only half the global average, and compared to other European countries, Germany is significantly more efficient than Italy or Spain, for example. Nonetheless, we obviously have significant gas expenses.
However, all efficiency is useless in view of the enormous cost shock that our industry is now facing. After moving in a narrow corridor for years, the gas price has risen by 2,000 percent since the beginning of 2021. Despite the slight easing in recent days, this is an unbearable level for private households and companies, which also has an impact on the electricity price. Because the fact is that gas is still used to generate electricity.
What is threatening here is a massive de-industrialization of Germany. Internationally operating companies are relocating their production to cheaper locations. Think of the US, where natural gas is a tenth of what it is here. Companies that cannot do this and are in international competition run the risk of not being able to cope with this increase in costs and being permanently eliminated from the market.
This is the decisive difference to the Corona crisis, which our government and, above all, the Minister for Economic Affairs do not seem to fully grasp. A restaurant may be closed for a few months and then reopened or replaced by another in the event of bankruptcy. This does not apply to industrial companies. Once a factory has been closed, it is by no means certain that it will open again. Capacities are being created in other regions and, as mentioned at the beginning, the location’s competitiveness was not good before.
So instead of shrugging our shoulders and saying that we’re all getting poorer and hoping that “the winter won’t be too hard” like our economy minister, the government should act better – in both senses of the word. It has to be about breaking the wave. It is clear that energy prices will not remain at current levels indefinitely. They will probably not return to the pre-war level – although this would also be possible with intelligent politics(!) – but they will fall significantly compared to today.
So what should politicians do?
On the one hand, the government should finally get to work to credibly increase the supply of energy in the future.
Simply by adopting these measures, the futures price, which is crucial for companies, would relax significantly.
The second part of the program must start directly with the gas price. Here the government should flatten the wave and finance the additional costs. What do you mean with that?
The cost of such a program would certainly be significant. I’ll try an – admittedly – very simplified calculation: in the past we spent around 30 billion euros on importing gas. We are currently running at an annual rate of around 60 billion, which already reflects the industry’s significant savings efforts. The state would therefore have to bear the additional costs for a transitional period. If the state covered the entire difference of 30 billion (which is more than the above proposal would cost) and did so for a period of three years (which is also an overly negative assumption, especially if measures to expand supply are taken at the same time) , the costs amounted to 90 billion euros, around 2.5 percent of GDP.
That may seem like a lot, but compared to the economic damage that occurs elsewhere, it is negligible. Even if the costs are twice as high, it should be worth it for all of us if the state intervenes.
But who should pay for this rescue operation in the end, many will ask themselves. Should the “ordinary worker pay for large corporations” again, as I am already expecting from some politicians? no The gas consumers should pay it back in the future. The state “Gas Economic Rescue Fund” only acts as an interim financier. In the future, when energy prices have normalized, a surcharge will be added to the gas price, which will allow the debt incurred to be repaid over a very long period of at least 30 years. That fits with the estimate that our own gas reserves last for a good 30 years. The unbeatably cheap German gas – because it is not transported halfway around the world – would then remain unbeatably cheap despite the surcharge.