Germany's energy predicament is deteriorating rapidly. As ongoing instability in the Middle East drives another sharp increase in European gas prices, Germany's Economics Minister has publicly called for a re-evaluation of the country's decades-old policy of phasing out nuclear power, admitting there are no other choices for baseload energy supply.
Economics Minister Katherina Reiche stated that the nuclear phase-out policy advanced by successive governments has left Germany without any reliable alternatives for baseload power, leaving natural gas as the only current option. Since the outbreak of conflict involving the US and Iran, European natural gas prices have surged by more than 60%. Germany's electricity futures price for May is four times higher than the price in France.
A consortium of leading German economic research institutes warned this Wednesday that the current energy shock will erase more than half of the previously forecasted GDP growth for 2026. The latest forecast has downgraded the 2026 growth rate to 0.6%, significantly lower than the 1.3% predicted last September; the growth expectation for 2027 is also a mere 0.9%. Chancellor Friedrich Merz has characterized the nuclear phase-out policy as a "major strategic error" and has also pledged to end Germany's previous opposition to nuclear power at the European Union level.
The trigger for this energy crisis is market turbulence following the outbreak of conflict in the Middle East. Since the conflict began, European natural gas prices have risen by over 60%, marking Europe's second major energy price crisis in less than five years. Pressure on Germany's electricity market is particularly acute. According to data from the Energy Exchange (EEX), Germany's electricity futures price for May is four times that of France, Europe's largest nuclear power producer. This price gap clearly illustrates the significant cost divergence resulting from the two different energy strategies. The pain of high energy prices is deeply felt within the German economy. Official statistics show that in the second half of 2025, natural gas prices for private households in Germany were 79% higher than 2021 levels, while electricity prices rose by 23%. For the already strained energy-intensive industries, the cost shock is further squeezing profit margins.
Germany's current energy vulnerability stems from a policy transition that has spanned over a decade. In 2011, then-Chancellor Angela Merkel decided to initiate the nuclear phase-out following the Fukushima disaster, a policy ultimately completed under former Chancellor Olaf Scholz. The nuclear phase-out was accompanied by a large-scale push for renewable energy. However, during periods of low wind and limited sunlight, gas-fired power plants became the last line of defense for grid stability, leading to Germany's increasing reliance on natural gas. After the Russia-Ukraine conflict, the sudden interruption of pipeline gas supplies fully exposed the fragility of Germany's energy strategy. Berlin was forced to rapidly pivot to liquefied natural gas (LNG) imports, a significant portion coming from the United States, which now accounts for approximately 10% of Germany's total supply. Energy costs have remained persistently high since. Reiche conceded that natural gas is now Germany's "only remaining source of baseload supply." In her view, this structural dilemma is the fundamental reason for calling for a reassessment of the stance on nuclear energy.
The energy shock is directly eroding Germany's growth prospects. The consortium of leading German economic research institutes warned this Wednesday that the current energy shock will wipe out more than half of the previously expected GDP growth for 2026. The latest forecast has downgraded the 2026 growth rate to 0.6%, far below the 1.3% predicted last September; the growth expectation for 2027 is also just 0.9%. This data makes the government's narrative of recovery increasingly difficult to sustain. Despite Berlin launching a massive €1 trillion, ten-year infrastructure and defense spending plan—the largest fiscal expansion since German reunification—growth momentum remains weak. Reiche acknowledged that energy-intensive industries are under significant pressure but simultaneously emphasized that Germany currently faces no risk of supply shortages.
A subtle but noteworthy shift is occurring in Germany's policy stance. Chancellor Friedrich Merz has long labeled the nuclear phase-out a "major strategic error." While the government currently explicitly rules out restarting decommissioned traditional reactors, it has shifted to supporting research into small modular reactors (SMRs) and nuclear fusion. Merz has also pledged to end Germany's previous opposition to nuclear power at the EU level. In an interview with the Financial Times, Reiche urged Germany not to remain on the sidelines of Europe's nuclear energy revival. She pointed out that France, Sweden, and Poland are all building new reactors or extending the operational lives of existing units to capitalize on nuclear power's advantages in providing low-carbon, dispatchable electricity.
"You can decide you're not interested, and continue using gas, becoming increasingly dependent on a single energy source; or, you can become interested in the technology again," Reiche said.
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