German government to subsidize industry’s energy prices in bid to revitalize economy

BERLIN (AP) — Germany’s governing coalition agreed to subsidize energy prices for heavy industry over the next three years as it tries to breathe new life into a stubbornly slow economy that is weighing on Europe’s performance.

Chancellor Friedrich Merz said he and other coalition leaders agreed Thursday evening to introduce an electricity price of about 5 euro cents (6 U.S. cents) per kilowatt hour starting Jan. 1, through 2028, to “support companies that use a lot of electricity and face international competition.”

Talks on the plan with the European Union’s executive commission are near-complete and “we assume we will get permission for this,” Merz said.

The German economy, Europe’s biggest, has shrunk for the past two years and has not seen significant growth for much longer. The conservative Merz’s coalition government with the center-left Social Democrats has made revitalizing it a priority since taking office in early May.

Still, results haven’t shown through yet, with gross domestic product stagnating in the third quarter. This week, the government’s panel of independent economic advisers forecast it will grow by an unimpressive 0.9% next year after edging up 0.2% this year.

The country’s economy, which is heavy on manufacturing and exports, has been held back by multiple factors including high energy prices, competition from Chinese producers of autos and industrial machinery, a lack of skilled workers and excessive bureaucracy.

The government has launched a program to encourage investment and set up a fund of 500 billion euros ($581.4 billion) to pour money into Germany’s creaking infrastructure over the next 12 years. The government promises to cut red tape and speed up the country’s lagging digitization.

ING economist Carsten Brzeski, who put the current energy price at some 15 euro cents (17 U.S. cents) per kilowatt hour, said Friday that the planned subsidy “sends a strong signal and could provide industry not only short-term relief but also clarity and stability for years to come.”

Holger Lösch, deputy managing director of the Federation of German Industries, said the subsidized price would “help particularly energy-intensive industrial companies to remain competitive internationally,” adding that he hopes the EU allows Germany the flexibility to reduce a large number of companies’ costs.

Finance Minister Lars Klingbeil put the expected cost of the measure at between 3 and 5 billion euros ($3.4 billion and $5.8 billion).

Coalition leaders also agreed to cut a tax on airline tickets starting in July, something the air transport industry has long demanded. The measures will need parliamentary approval.