Germany seeks way out of energy and inflation crisis

As the leader of the largest opposition party, Friedrich Merz used Wednesday's budget debate in the Bundestag to attack the government head on. His conservative Christian Democratic Union (CDU) had led the German government for 16 years before they lost the election in 2021. Since the party's historically poor showing then, the conservatives have managed to somewhat rebound and are currently polling as the strongest party in Germany.

67-year-old Merz is a former head of the supervisory board of BlackRock Germany and known as a staunch conservative. He took aim mainly at Economy Minister Robert Habeck of the environmentalist Greens.

On Monday, Habeck had announced that the last nuclear power plants would cease operation, but two would be left in standby mode until April next year.

"The whole world is looking at Germany and saying: 'Have these Germans actually gone crazy to shut down three nuclear power plants that would be able to safely supply 10 million households with electricity'," Merz said.

The decision against nuclear power may reassure the Green Party base, he said, but "possibly irrevocably damage" Germany as a business location.

Many companies, Merz said, have order books fuller than they've been in years, but can't process them. "That has something to do with the inflation rate and demonetization and supply chains."

Habeck and the insolvency

Chancellor Olaf Scholz and his economy minister then heard Merz accuse them of lacking "any compass" and of being unable "to think strategically" in their economic policy.

Habeck seemed "helpless," Merz said, referring with relish to a TV appearance by Habeck in which he seemed unsure what actually constitutes insolvency.

During that interview, Habeck was confronted with a statement from the German Association for Small and Medium-Sized Businesses (Deutscher Mittelstands-Bund) that read: "The reduction in value-added tax on gas or the electricity price brake, which has hardly been specified to date, will primarily provide relief for private consumers."

"An energy-intensive bakery business, for example, is almost completely left behind by the relief measures."

So did Habeck expect a wave of insolvencies at the end of this winter? "No, I do not," he said. "I can imagine that certain industries will simply stop producing for the time being." Whereupon the interviewer pointed out that this, surely, would mean they would actually be insolvent.

A fiery chancellor

Chancellor Scholz can't have liked the minister's unfortunate performance, but he didn't let on in the Bundestag. Instead, he vehemently defended his government's policy and made an unusually fiery speech. At first, he briefly stuck to his script and, in his usual matter-of-fact detail, listed what his coalition government had agreed on in their relief package over the weekend.

But then Scholz got increasingly agitated, his voice grew louder and he clenched his fist — there was nothing of his usual emotionless, sometimes robotic performance. He accused the CDU of making Germany dependent on Russian energy during their time in government.

"You were incapable of bringing about the expansion of renewable energies. You fought defensive battles against every single wind turbine," Scholz said, pointing to the CDU Bundestag members.

He added that the CDU hadn't even noticed that Germany's gas stores were systematically running dry. "It is irresponsible CDU policy that has brought us to the current situation," he said.

Scholz has inside knowledge of the previous government's decision-making procedures, seeing as he was vice chancellor and finance minister in the last four years of Angela Merkel's government.

But it was a CDU chancellor and economy minister who put the brakes on an expansion of renewables back in 2018.

Electricity and gas price caps to come

The current government, Scholz pointed out, had ensured that the gas storage facilities are already full again and it will also ensure that energy prices are lowered, referring to European Union plans for an electricity and gas price cap and the construction of new LNG terminals. "We will get through the winter," the chancellor stressed, adding that the country will "become independent of energy from Russia at great speed."

With increasing speed, the energy crisis is turning into an economic crisis that threatens to drag the country into recession. The coalition wants to spend €65 billion ($65 billion) to cushion the greatest hardships.

There are also differences in the government about the right course through the crisis. The neoliberal Free Democratsare in favor of giving German nuclear power plants a lifeline. They are among the safest in all of Europe, say FDP leaders. This stance sees them side with their old allies, the CDU. But the Green Party is violently opposed.

Poor polls

This comes against a backdrop of opinion polls that are dismal, especially for Olaf Scholz's Social Democrats (SPD). The center-left SPD won last year's federal election with 25.7% of the vote, but now they have fallen again to around 17%.

The FDP has also lost support, slipping from 11.5% in the general election to a mere 8%. Seeing as they also suffered a significant defeat in recent regional polls, Finance Minister Christian Lindner's party has every reason for concern.

The Greens, on the other hand, have made significant gains in the nine months since coming to power and are stronger than the SPD in the opinion polls: At 23%, they are currently the second strongest party — behind the conservative opposition of CDU/CSU.

The Greens performed well in recent regional elections and are now part of government in 10 of Germany's 16 states. The Greens' leading politicians, Economy Minister Habeck and Foreign Minister Annalena Baerbock, are also by far the country's most popular politicians.

This has led to jealousy within the coalition. In recent weeks, prominent politicians from the coalition parties were repeatedly exchanging barbed remarks. Publicly, Olaf Scholz is staying out of the fray, but it can be assumed that he is pushing for unity behind the scenes.

All eyes are now on the next state election in Lower Saxony on October 9. The result for the SPD head of government in the northern state will have an impact at the federal level.

The Greens are to hold a party conference in October. After that, at the latest, the dispute over extending the operating lives of nuclear power plants will continue.

By then, of course, autumn will have arrived and the nights will be noticeably cooler. "Whether it works out in winter without rationing stands and falls with the behavior of private households," warned the head of the Federal Network Agency Klaus Müller at the beginning of September.

Energy prices are now going in only one direction: up.

That is why it's not only CDU leader Friedrich Merz talking about an "existential crisis" in the Bundestag. He warns: "The situation may come to a dramatic head in the coming days, weeks, months."

This article was originally written in German.

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