Economy & Business

German πŸ‡©πŸ‡ͺ €200B Energy Subsidy will test EU’s Stability

The German government has formulated a subsidy for the household and manufacturing sectors to control the energy crisis caused by the Russia-Ukraine war. Germany was mostly depending on Russia for its energy needs, which included both fuel and gas. Over the past decades, Russia used to supply more than half of German natural gas demands.

However, since the start of the war, the western countries, including Germany and the US, have effectively cut the fuel procurement of petrol and diesel from Russia and have insisted that other global players like India put an end to their fuel acquisition from Russia. But the hard reality was that the western countries continued purchasing natural gas from Russia at a very high rate, even though they managed to reduce the quantity of their purchases. This was the reason for India not to favour the repeated requests from the western countries and to continue to purchase more fuel from Russia at better rates for the benefit of the Indian economy.

Germany is the strongest and most stable economy in the EU, and they have the capacity to implement an energy subsidy worth €200 billion to overcome the crisis. This can never be a match towards the Subsidy formulated by other countries in EU due to its big value. The lower energy rates will control inflation in Germany and contribute to the wellbeing of the German people.

The trade advantage will be much more drastic from an economic point of view for Germany, which is one of the top global manufacturers. Manufacturing and transport charges will be reduced, and German companies will be able to provide goods at much better rates not just for Germany but also for the entire EU due to the nature of the trade agreement.

Hence, the member countries of the EU have openly and internally spoken against the subsidy and its long-term effects on trade. Poland’s Prime Minister Mateusz Morawiecki said, “The richest country, the most powerful EU country, is trying to use this crisis to gain a competitive advantage for their businesses on the single market.” French Finance Minister Bruno Le Maire said, “If there is no consultation, no solidarity, no targeted support for business, if there is no respect for a level playing field, we risk the fragmentation of the Eurozone.”

For example, German products will be much cheaper than most French products in France, even if they’re not manufactured in France. This will have long-term consequences for trade. The German economy and trade will prosper, but other EU nations will suffer, threatening the EU’s unity. Only time will tell how the EU will deal with this crisis.

Leon Jose Vithayathil

Leon Jose Vithayathil is a finance professional currently working and residing in the United Kingdom. He is an MBA graduate in Financial Management. He currently works as a Credit Controller with a reputed company in High Wycombe, which comes under the top three waste management and disposal companies in the UK. He pre-owned a company and was an international merchant of spices from Africa and South-east Asia to India. He had also worked as a Chief Finance Officer for an Italian pharmaceutical company in Africa. Leon has been very vocal about social issues faced by the Indian diaspora.

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