Inflation in Germany hits highest level in 25 years and government announces 200 billion euros package

German Chancellor Olaf Scholz set up a €200 billion “defensive shield” on Thursday to protect businesses and consumers from the impact of the energy price, which rose 43, 9% in a year in the country.

Europe’s biggest economy is trying to cope with rising gas and electricity costs caused in large part by a collapse in Russian gas supplies to Europe, which Moscow blamed on Western sanctions after Russia’s invasion of Ukraine in February.

Rising energy prices took Germany’s inflation to the highest level in more than 25 years in September. Consumer prices, harmonized to make them comparable with inflation data from other European Union countries, rose 10.9% year-on-year, the federal statistics agency said.

This was the highest reading since the start of using comparable data in 1996.

“Prices have to come down, so the government will do everything it can. For that, we’re putting together a big defensive shield,” Scholz said, outlining the package.

Under the plans, which will be financed with new loans, the government will introduce an emergency brake on gas and electricity prices and eliminate a previously planned gas tax on consumers to prevent further price increases.

Nuclear power plants in southern Germany, which were due to be closed by the end of this year, will be allowed to continue operating until 2023.

Berlin has lifted its ceiling on new debt of 0.35% of GDP (Gross Domestic Product) this year. Finance Minister Christian Lindner previously said he wants to meet the ceiling next year.

Lindner said on Thursday that Germany would finance the aid package with new loans, adding that the country’s public finances were stable.

“We want to clearly separate crisis spending from our regular budget management, we want to send a very clear signal to capital markets.”

The gas levy, which was due to take effect from Saturday and last until April 2024, was designed to help utilities cover the cost of replacing Russian supplies.

However, the need for the fee came into question after the government’s decision to nationalize Uniper, Germany’s biggest Russian gas importer.