Olaf Scholz gathers union and business association leaders at the Chancellery on Monday to begin what officials call “concerted action” to bring Germany’s spiraling cost-of-living crisis under control.

Exacerbated by Russia’s strategic throttling of gas supplies to the EU, inflation hit 7.6% in June, with politicians and senior officials already warning that energy should be conserved before the start of the cold season in autumn.

“Citizens have to fend for themselves in their lives,” Scholz said in an interview with public broadcaster ARD on Sunday. “And, if the heating bill suddenly increases by a few hundred euros, that may be an amount that many people cannot really afford.” He called the situation a “social powder keg”.

One-time payments or salary increases?

The chancellor went on to deny a story that had crossed German media over the weekend: that he planned to solve the problem with tax-free one-off payments to consumers.

Such one-off government payments, particularly for heating bills, were launched last week by members of his centre-left Social Democratic Party (SPD). But the coalition government was keen to stress that this was just one of many measures being considered.

Marcel Fratzscher, president of the German Institute for Economic Research (DIW), was among several economists to say that any solution had to be long-term, not a one-time deposit. “Only higher wages and social benefits will compensate for the damage for people with middle or low incomes,” he told the ODA Press Agency. “One-time payments aren’t targeted because a lot of people don’t take advantage of them at all.”

For their part, the big unions have already promised to negotiate hard. Leaders of Germany’s two largest unions, IG Metall, which represents 2.26 million industrial workers, and ver.di, the service workers’ union, both gave interviews on Monday morning saying wages had to keep pace with inflation.

But few expect quick breakthroughs in the talks. A government spokesperson tried to manage expectations for the meeting (it would be about agreeing on a process rather than offering instant solutions, he pointed out), and the aim was to soften the blow to people’s incomes while avoiding a so-called “- price spiral.”

Fratzscher called the concept a “false myth” and warned against using it in concerted action to try to stop workers from demanding higher wages. The revenue trend, in general, has been too low rather than too high, he said. “The lower the purchasing power, the greater the damage to the economy,” Fratzscher said.

Meanwhile, opposition politicians were already criticizing the Chancellor’s approach. “Faced with the opening position, we are curious to see what will come out of a two-hour meeting,” said Jens Spahn, deputy parliamentary leader of the conservative Christian Democratic Union (CDU). RND news network with a note of sarcasm. “What we need now is permanent, targeted income tax relief, so that more is left for low and middle incomes.” Spahn also said the electricity tax should be lowered.

Veronika Grimm, a member of the five-member German Council of Economic Experts, which assesses the government’s economic policy, said tax relief was more likely to benefit people with higher incomes, but people on benefits were the most affected by high energy costs.

Different packages

The governing parties themselves have different ideas about what to do about the cost of living crisis. The Greens have already claimed that their most recent idea – a €9 ($9.40) ticket for a monthly trip on regional and city transport across the country – has been a success, and many are already calling for the program be extended beyond the summer.

But the strongest coalition partner is arguably the Liberal Democratic Party (FDP), whose leader, Christian Lindner, is also Germany’s finance minister. Ahead of Monday’s meeting, Lindner warned he was against any further state spending. “What we need is targeted aid, in order to reduce the loss of purchasing power,” he told the ARD television channel. “And then incentives for more to be produced without state money to increase productivity.” Instead, he called for more free trade agreements or more skilled immigration.

Edited by: Rina Goldenberg

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