Germany agrees on $2.38 billion in fuel-cost relief package

Chancellor Friedrich Merz’s coalition agreed on €1.6 billion (S$2.38 billion) in fuel-price relief to ease the impact of surging costs for German consumers as part of a broader package aimed at resetting Europe’s largest economy. 

The centrepiece of the package is the reduction of a gasoline tax by 17 cents per litre over a period of two months, the German leader said on April 13 after party officials met over the weekend to reach an agreement. Other measures include a tax-free employer bonus of €1,000, to be introduced for this year. 

“We cannot remove all uncertainties from world upheaval, that’s why this measure is limited,” Mr Merz told reporters in Berlin. 

Mr Merz’s coalition is under pressure to contain fuel prices in the short term while negotiating a comprehensive set of reforms and budget cuts, all while attempting to revive a stagnating economy. Party leaders headed into the weekend deadlocked over what steps to take, with measures such as a windfall tax on energy companies profits and tax breaks for commuters dividing key players. 

Mr Merz, who reiterated his scepticism over a windfall tax, said his government will await a signal from the European Commission, which is probing such measures. Finance Minister Lars Klingbeil, a Social Democrat, has backed the levy. The coalition plans to tighten antitrust rules to help police price increases and help finance the fuel measures with an increase in an already-announced tobacco tax.  

As US President Donald Trump threatens to blockade the Strait of Hormuz and talks to seal an agreement failed, German leaders said that the impact of the war in the Middle East will have a long impact on the economy irrespective of how it’s resolved in the coming days or weeks. 

“The Iran war is not our war, but it is our problem,” the chancellor’s Bavarian conservative ally, Markus Soder, who leads the Christian Social Union, said. 

The crisis compounds the challenge for Mr Merz’s coalition, which has set out to push through an overhaul of the economy this year. Mr Klingbeil said he’s moving forward with changes to the income tax, take effect next year, while a plan to close a widening funding gap in the German health system is expected by the end of the month. 

That will feed into drafting Germany’s medium-term budget, where a gap of around €140 billion through 2029 must be addressed. 

A proposal to increase the commuter allowance championed by Economy Minister Katherina Reiche, a member of Mr Merz’s conservative Christian Democrats, was not discussed over the weekend, according to an official involved in the talks. 

“These talks can sometimes be difficult, but over the weekend it became clear that we want to move forward in our country,” Mr Klingbeil said. BLOOMBERG