The German coalition has agreed on a gas price cap that will see €200bn of borrowing to finance a “defensive shield”.

The plans, designed to protect companies and consumers from the rising costs of energy, will also see nuclear plants that were due to close this year kept open until the spring of 2023.

A planned gas levy on consumers has also been abandoned in order to keep energy prices from rising further.

“Prices have to come down, so the government will do everything it can. To this end, we are setting up a large defensive shield,” Germany’s Chancellor, Olaf Scholz, said.

Germany has suffered heavily due to its reliance on Russian gas, with gas supplies having collapsed in recent months as Russia reduced and eventually cut off its supply to the nation.

The move comes after four leaks were discovered in the Nord Stream pipelines on Monday, which previously supplied gas to Germany, severing any hope that Russia would resume gas flow into Germany.

German inflation has also skyrocketed into double digits for the first time in over 70 years, with consumer prices having risen by 10.9 per cent since last September, up from 8.8 per cent in August.

German economists have warned that Europe’s largest economy could shrink by 7.9 per cent next year, if Germany is hit by an especially cold winter.

But Finance Minister Christian Lindner, of the pro-business Free Democrats (FDP) who is part of Scholz’s coalition with the Social Democrats and the Greens, has described the country’s public finances as stable, adding that the latest package will be financed with new borrowing this year within the constitutional set limit of new debt which is set at 0.35% of gross domestic product. 

With a nod to the current turmoil in global markets, Lindner said: “We can put it no other way: we find ourselves in an energy war. We want to clearly separate crisis expenditure from our regular budget management, we want to send a very clear signal to the capital markets.” And he added that the latest energy package would even help put a brake on inflation. Let’s hope so.