The German ruling coalition has reached an agreement to provide energy price subsidies for heavy industries over the next three years. The move aims to inject new vitality into Germany's sluggish economy, which has long suffered from weak growth and is currently dragging down economic performance across Europe.

German Chancellor Friedrich Merz stated that he and other coalition leaders finalized the plan on Thursday evening. Starting January 1, 2026, until 2028, electricity prices will be capped at approximately 5 euro cents (6 US cents) per kilowatt-hour to "support energy-intensive enterprises facing international competition."

Merz noted that negotiations with the European Commission regarding the plan are nearing completion, adding, "We expect to receive the necessary approvals."

As Europe's largest economy, Germany has seen its GDP contract for two consecutive years, with no significant growth over an even longer period. Since taking office in early May, the conservative-led coalition government with the center-left Social Democrats has prioritized economic revival.

However, policy effects have yet to materialize—Germany's third-quarter GDP remained stagnant. This week, the government's independent economic advisory council projected meager growth of just 0.2% for 2025 and 0.9% for 2026.

Germany's manufacturing and export-driven economy faces multiple challenges: high energy costs, intensifying competition from Chinese automotive and industrial machinery producers, skilled labor shortages, and bureaucratic inefficiencies.

The government has launched an investment incentive program and established a €500 billion ($581 billion) fund to upgrade aging infrastructure over the next 12 years. It has also pledged to streamline administrative processes and accelerate the country's lagging digital transformation.

ING Groep NV economist Carsten Brzeski pointed out that current German electricity prices hover around 15 euro cents (17 US cents) per kilowatt-hour. On Friday, he remarked that the proposed subsidy "sends a strong signal, providing not only short-term relief but also long-term certainty and stability for industrial firms."

Holger Lösch, Deputy Managing Director of the Federation of German Industries, said the subsidized rates would "particularly help energy-intensive manufacturers maintain international competitiveness." He further urged the EU to grant Germany flexibility in expanding cost-reduction measures to more businesses.

German Finance Minister Lars Klingbeil estimated the subsidy program would cost between €3-5 billion ($3.4-5.8 billion).

The coalition also agreed to reduce air travel taxes starting July next year—a longstanding demand from the aviation sector. All measures require parliamentary approval.