German Chancellor Friedrich Merz once had a reputation as a fiscal conservative. Once he was elected this year, though, he discovered that many things in the country need fixing, including its renowned industrial sector. Now his government is exploring ways to fund multibillion-euro subsidies for the most energy-intensive companies. While this might buy time, it won\u2019t fix the grave mistakes that have caused Germany\u2019s economic crisis.<\/p>\n
According to a report<\/a> this weekend by the Financial Times, Berlin wants to spend \u20ac4 billion on reducing companies\u2019 electricity bills, with the government paying up to half of the costs for them. Currently, 350 companies are eligible \u2014 but German Economy Minister Katherina Reiche wants to extend this to 2,200, according to the FT.<\/p>\n Reiche and Merz hope to get this past the EU\u2019s rules on state aid, arguing that the entire eurozone will benefit if its largest economy recovers. Germany was the only G7 economy which failed to grow<\/a> for the last two years, and might be in for a third year of stagnation. Something has to be done, but energy subsidies are, at best, an interim measure while the government works on fixing the underlying problems. Chief among these is the self-inflicted energy crisis.<\/p>\n Despite weaning itself off Russian fossil fuels, Germany remains extremely dependent on imports, which make up around two-thirds<\/a> of the energy it consumes. A massive expansion of the renewable sector was supposed to scale that back, but wind and sunshine are, by definition, unpredictable. In the first quarter of this year, Germany produced most of its electricity from fossil fuels due to a lack of wind.<\/p>\n It is this combination of unpredictable renewables and expensive imports that is causing trouble for energy-intensive industries in Germany. They never know their running costs from one year to the next. Subsidies would level this risk if they were high enough and long-term, but investors know that subsidies are politically fickle.<\/p>\n One association of steel and chemical workers has now written a strongly-worded letter<\/a> to Merz. \u201cWe don\u2019t want subsidies that get distributed as if by a liege lord, but decent parameters so that work and wealth creation might have a future again in Germany,\u201d their letter argues, adding that subsidising energy costs would \u201conly treat the symptoms but not tackle the underlying causes of the energy crisis\u201d.<\/p>\n The workers blame the government squarely for this, arguing that it needlessly ended German nuclear energy in 2023 when the sector had once generated nearly a third<\/a> of the country\u2019s electricity. With no intention to reverse its nuclear exit, Germany has increased its dependency on fluctuating renewables and imported energy. Despairing at this policy, which they say cost 100,000 industry jobs last year alone, the workers write: \u201cNever before has our electricity supply been so expensive and unreliable.\u201d<\/p>\n Many of their bosses agree. ArcelorMittal, the world\u2019s second-largest steelmaker, turned down<\/a> \u20ac1.3 billion in subsidies last month intended to entice it to convert two plants in Germany to carbon-neutral production. The company argued it\u2019s not worth it even with the subsidies, because the running energy costs would be too high.<\/p>\n Germany\u2019s ailments boil down to one simple truth: the third-largest economy in the world must have a steady power supply. Renewables and imports play a crucial part, of course, but they can never be fully depended on. A little less wind, a cloudy year, or a falling out with a supplier, and costs spiral up for industry and consumers.<\/p>\n