The German government intends to dampen soaring fuel prices through a targeted tax cut. Energy taxes on diesel and gasoline are set to be reduced by approximately 17 cents per liter for a period of two months, Chancellor Friedrich Merz (CDU) announced in Berlin on Monday. "This will provide immediate relief for motorists and businesses across the country." Merz added that he expects the oil industry to pass on the tax relief directly and in full to consumers. The coalition leadership had spent the weekend deliberating on various proposals.

The measure is part of a broader fiscal package agreed upon by the governing coalition. This also includes reforms to the statutory health insurance system and a tax reform for low- and middle-income earners effective January 1, 2027. "This is only the beginning," Merz stated. He described it as the start of a series of consultations aimed at making the state "more modern and fairer" while bolstering public confidence in the country's functionality.

The Chancellor cited the conflict between the United States and Iran as the primary driver of high energy prices. Negotiations for a ceasefire were reportedly suspended the previous day. Furthermore, the U.S. President announced a blockade of the Strait of Hormuz, causing oil prices to surge back above 100 dollars per barrel overnight. "This conflict, this war, is the root cause of the problems we are facing domestically," Merz said. He emphasized that he and Foreign Minister Johann Wadephul are doing everything in their power to work toward an end to the hostilities.

(Reporting by Markus Wacket, edited by Elke Ahlswede. For inquiries, please contact our editorial office at berlin.newsroom@thomsonreuters.com (for politics and economics) or frankfurt.newsroom@thomsonreuters.com (for corporate and markets).)