Germany’s coalition government on Monday agreed a €1.6 billion ($1.9 billion) fuel price relief package to ease the burden of soaring energy costs on households and businesses, following a dispute over how to respond to the global oil shock.
The measures, announced in Berlin, include a temporary cut in energy taxes on petrol and diesel by about €0.17 per litre for two months, aimed at cushioning the impact of supply disruptions linked to the Iran war.
Chancellor Friedrich Merz said the conflict was the primary driver of rising energy costs domestically and urged oil companies to fully pass on the tax savings to consumers.
However, economists and industry groups warned that without stricter oversight, oil firms could absorb part of the tax relief as profit, limiting the intended benefit for end users.
Marcel Fratzscher of DIW Berlin criticised the plan, arguing it fails to incentivise reduced fuel consumption while potentially boosting company margins.
Fuel station operators also called for tougher action, including possible price controls on oil majors, to prevent profiteering during the crisis.
In addition, the coalition approved a tax-free €1,000 bonus for employees, allowing companies to support workers without added payroll or social security costs.
The agreement followed weekend negotiations that eased tensions between coalition partners, after disagreements over proposals such as a windfall tax on oil companies.
Economy Minister Katherina Reiche and Finance Minister Lars Klingbeil had clashed over the issue, highlighting strains within the government.
Berlin is under mounting pressure to stabilise Europe’s largest economy, as it also signals opposition to tighter EU carbon levies and prepares broader tax cuts for lower- and middle-income households from 2027.