Robert Habeck has presented a massive emergency program for the green conversion of the country.
(Photo: dpa)
Greenflation was still a taboo topic recently. Now the price surge due to climate change is a hot topic. The European Central Bank (ECB) is already worried about rising energy prices.
Normally, central banks align themselves with the core inflation rate, which is adjusted for volatile energy prices. It was therefore a paradigm shift when Director Isabel Schnabel recently said publicly that energy prices could force the ECB to rethink.
It is fitting that the new economics and climate protection minister, Robert Habeck, has presented a massive emergency program for the green transformation of the country. He himself speaks of taking full risks.
However, consumers and companies are already feeling the effects of the high gas prices, which have risen by a whopping 308 percent since the beginning of 2021. The demonstrations of power by Russian President Vladimir Putin certainly play a role here. But the demand for gas is so strong that prices are rising. Gasoline has also become more expensive. A liter costs 1.60 euros. This puts a strain on people’s budgets.
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When the Federal Minister of Transport, Volker Wissing, announces the end of the internal combustion engine and is fully committed to e-mobility, then you know: It won’t get any cheaper. The power requirement is enormous. And electric cars are more expensive to buy than combustion engines. The price differences are currently subsidized away. The state cannot afford this in the long term.
Relief is only partially effective
The economy is also suffering from green inflation. Not only for energy-intensive companies, the more expensive electricity, gas and oil become, the more endangered Germany is as a business location. If, for example, energy costs exceed sales in a glassworks, something is no longer right in the country.
The abolition of the electricity tax is just a drop in the bucket, especially since it is not certain that the energy companies will not pass the tax reduction on to their consumers. The temptation will be to increase profit margins.
The abolition of the EEG surcharge is overdue. It is of no use to a few thousand companies on the cost side, as they benefit from exemptions. However, it cannot be that the industry suffers a cost shock as a result of rising CO2 pricing. The oil price shock in the 1970s is linked to stagflation. A stagnant economy was added to the high inflation. This is the worst mix you can have.
The price increases are not only causing difficulties for citizens and companies. They are also a macroeconomic problem. Unions are having to make higher wage deals to compensate for the increased costs to their members.
One would be in a wage-price spiral that all economists fear like the devil fears holy water. At some point, the ECB will be forced to turn around interest rates. After the long phase of zero interest rates, this is anything but trivial. Because that will have negative consequences for investment and consumption.
What must Habeck do now? He must look at the cost side of companies and also include the ECB’s economic warnings in his considerations. Germany is the fourth largest economy in the world. You should only take calculated risks.
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