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ENERGY

Gas bills in Germany will remain high despite price cap, warns economist

Germany is planning to bring in a cap on the price of gas for consumers. But a leading economist has warned that energy prices will still remain high. What can we expect?

A woman warms up with tea and a blanket in a German flat.
A woman warms up with tea and a blanket in a German flat. Photo: picture alliance / dpa | Ole Spata

The German government last week announced a €200 billion relief package to help support private households and companies with spiralling energy prices. 

As part of the plans, a gas price cap is set to come into force in Germany, limiting the amount that people pay to use gas amid rocketing prices. 

The details on how it will work are still being thrashed out. But chairwoman of the gas price commission, Veronika Grimm, has dampened expectations for how big an effect the cap will have on energy bills. 

“We will permanently end our dependence on Russia,” the economics professor at the University of Erlangen-Nuremberg told the newspapers of the Funke Mediengruppe.

“So the gas price will remain significantly higher than before the Russian invasion of Ukraine due to higher liquid gas procurement prices – despite a gas price cap.” 

Grim suggested that the gas price cap could be in the form of a one-time payment to encourage people to continue using less gas. 

“It will be important to maintain a high savings incentive,” she said. “With a one-time payment, that would clearly be the case.

“You would have a much lower incentive to save if you lowered the price of gas by a certain percentage.”

On Thursday the Federal Network Agency warned that people in Germany are using too much gas.

“Gas consumption rose too sharply last week,” said Klaus Müller, head of the agency. 

He said gas usage among households and small firms was nearly 10 percent higher last week than the average consumption for the years 2018 to 2021.

“The situation could become very serious if we do not significantly reduce our gas consumption,” said Müller.

Meanwhile, economist Grimm slammed the time pressure that the gas price commission panel was under. The commission is to present proposal to policymakers on how a gas price brake could work in the coming days. 

“The decision to convene such a body could have been made a few months ago; after all, the development in gas prices was foreseeable,” Grimm said.

READ ALSO: German households see record hikes in heating costs 

Vocabulary 

One-time payment – (die) Einmalzahlung

Gas price cap/brake – (die) Gaspreisbremse

Significantly higher – deutlich höher 

Foreseeable – absehbar

We’re aiming to help our readers improve their German by translating vocabulary from some of our news stories. Did you find this article useful? Let us know.

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MONEY

DAX hits record high: What you need to know about investing in German index funds

Germany’s leading index of blue-chip stocks - or the country’s 40 largest companies - hit record heights early on Wednesday. Here's what you need to know if you're interested in (ideally) getting a piece of the pie.

DAX hits record high: What you need to know about investing in German index funds

The DAX rose 0.2 percent and surpassed the 18,000 point mark for the first time. The index climbed to 18,001.42 points minutes after the Frankfurt Stock Exchange opened. 

The DAX, which is made up of the top 40 large German corporations including Daimler and BMW, continues to build despite a wavering German economy. Some analysts say positive inflation indicators in the US and the eurozone contributed to the rally.  

But how can you get a piece of the pie? Here’s what to know about investing in Germany before you shell out your hard earned cash. 

Can foreigners invest in Germany?

Yes, but US citizens may face some limitations. International banks must report to the IRS when serving Americans, so several German banks do not offer investment services to this population. If you are a US citizen interested in investing in Germany, you should speak with an expert or financial advisor about your options. 

In Germany, the main fund managers that offer index funds include the Allianz Global Investors, Deutsche Bank, iShares, and Vanguard. 

How can I invest in Germany?

Germany offers residents several different investment options including:

  • Securities (e.g., Stocks, ETFs, Bonds)
  • Real estate
  • Gold
  • Crypto

Each of these options carry different levels of risk. Interactive Brokers, Trade Republic, Saxo Bank, eToro, and Lightyear are some of the popular online brokerage account providers operating in Germany. These accounts allow you to invest in index funds. Traditional banks like ING and Commerzbank also offer some expats securities accounts where stocks and other investments can be purchased. 

READ ALSO: What to know about cryptocurrency in Germany

What is an index fund?

An index fund is either a mutual fund or an exchange-traded fund (ETF) that invests in a mix of stocks, bonds and other securities. Index funds are grouped to mirror regional markets or capture the growth of an industry like tech or oil. 

Index funds are considered a safer and more passive way of investing because they are intended to mimic the performance of a financial market index. 

What are some of the biggest index funds in Germany?

There are four indices available to invest in the German stock market. The DAX tracks the 40 largest German blue chip companies including Adidas, Deutsche Bank, and Zalando. This index grew more than 26 percent over the last three years.  

Deutsche Bank

A photo taken on August 13, 2021 shows the Deutsche Bank headquarters in Frankfurt am Main. (Photo by ARMANDO BABANI / AFP)

The FTSE Germany All Cap follows a mix of large, medium and small sized companies based in Germany. The performance of companies like Siemens, Deutsche Telekom, and Mercedes play a role in this fund’s performance. This index fund grew 15.04 percent in the same period. 

The F.A.Z. tracks the 100 largest German stock corporations across 12 industries. Companies like Hugo Boss, Bayer, and Lufthansa are included in this index fund which rose 13.25 percent over the last three years

The Solactive Germany 30 follows the performance of the country’s largest 30 companies including Porsche, BioNTech, and DHL. The index rose nearly 22 percent in a three year period

How are index funds taxed in Germany?

All investment income (capital gains and dividends) is subject to a flat tax in Germany. The tax rate is 25 percent plus the church tax and solidarity surcharge (5.5 percent). Without the church tax the effective tax rate on gains is 26.375 percent. When the church tax is included, the effective tax rate rises to 27.82 percent for Bavaria/Baden-Württemberg and 27.99 percent everywhere else. 

While the Solidarity Tax no longer applies to the majority of German taxpayers who make below  €73,000 as singles or €151,000 for married couples, it still applies to all capital gains, regardless of the amount.

The German government also offers a tax-free allowance for investment gains. Up to €801 when single or €1,602 when married is tax free. 

READ ALSO: What you should know about investing in Germany

Can you invest in foreign index funds in Germany?

Yes, but don’t forget to keep track of how much taxes you may owe if you invest abroad. When investing in Germany, banks automatically deduct the tax to pay to the authorities. 

But expat investors must keep track of profit gained from foreign banks and exchanges because the tax is not automatically deducted by banks not affiliated with the German tax authorities. The taxation rate remains the same for capital gains from foreign index funds.

As with all of our financial and tax summaries, this is a guide only. For financial advice which is personalised to your situation, please contact an accountant or other specialist.

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