German Chancellor Olaf Scholz has announced that Russian President Vladimir Putin has climbed down from a demand that Europe pay its gas bills in rubles and will allow payment in euros for the meantime, Deutsche Welle (DW) reported on March 30.

The Russian leader said money would be paid into Gazprombank, which is not subject to sanctions, and then transferred in rubles to Russia, according to a German statement cited by DW.

The Kremlin warned its Western customers on March 27 that it would no longer accept foreign exchange payments within days from "unfriendly" countries and that all contracts for deliveries of gas to Europe would have to be made in rubles. Many European customers said they would refuse to pay in rubles and that any demand to switch to the Russian currency would be a breach of contract and grounds for termination of those contracts.

The move was seen by economists as a way to support the ruble by forcing foreign governments to buy billions of euros worth of rubles on the Moscow Exchange. Germany alone has paid €4bn for gas imports since the start of the war in Ukraine.

During a government meeting on March 30 Scholz repeated that Germany is committed to a G7 agreement that energy supplies from Russia would be paid for only in euros or US dollars.

Scholz added that Berlin received assurances the same day from Moscow that Europe could continue to pay for gas with foreign exchange.

Analysts speculate that Putin may have climbed down from his hard line due to the technical problems of making ruble payments associated with issues making transfers harder following the SWIFT sanctions on Russia that make international payments difficult.  

Putin told Scholz in a phone call that the money would be paid into Gazprombank and then transferred in rubles to Russia, a German statement said. The bank is not currently subject to sanctions.

"Scholz did not agree to this procedure in the conversation, but asked for written information to better understand the procedure," the statement added.

According to a Kremlin statement, Putin told Scholz that "the decision taken should not lead to worsening of contractual terms for European importer companies."

At the same meeting Germany launched an emergency plan to wean itself off Russian gas as soon as 2025.