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Germany to block sovereign wealth fund takeovers

Berlin on Wednesday to block takeovers of German firms by petrodollar-rich investment vehicles known as sovereign wealth funds if they are deemed to jeopardize national security.

Germany to block sovereign wealth fund takeovers
File photo of German Economy Minister Michael Glos. Photo: DPA

Chancellor Angela Merkel’s cabinet approved a bill that would see acquisitions by foreign entitities not based in the European Union of more than a 25 percent stake in German firms scrutinised, the Economy Ministry said.

If such a purchase is deemed to pose a threat to public security or order, Berlin could prevent it from going through, according to the bill that must now be passed by parliament to become law, the ministry said in a statement. Sovereign wealth funds are investment vehicles typically controlled by hydrocarbon-rich countries like Russia or Gulf nations with trillions of dollars at their disposal ready to invest abroad.

Many large banks were forced to go cap-in-hand to sovereign wealth funds when the subprime mortgage crisis left them strapped for cash. Singapore’s Temasek for example became the largest shareholder in Merrill Lynch. But concerns that their motives may be political and not just economic have prompted a backlash, with many countries such as the United States bolstering their defences against the funds’ advances.

Critics slam the German legislation as protectionist and as likely to damage the German economy by frightening off much-needed foreign investment, and sovereign wealth funds themselves are making efforts to be more transparent.

Economy Minister Michael Glos said Wednesday though that the proposed new controls were “very restrained.”

“Germany is and remains open for foreign investments,” he said. “The majority of foreign investments will be unaffected.”

One deal that the new legislation might block is the possible multi-billion-euro takeover of container shipping giant Hapag Lloyd, owned by German firm TUI, by Temasek.

The bid from Temasek, which has already publicly expressed interest in the company via its Neptune Orient Lines unit, is one of half a dozen or so that TUI has received, the Financial Times Deutschland reported in late July.

ECONOMY

German consumer prices set to rise steeply amid war in Ukraine

Russia's war in Ukraine is slowing down the economy and accelerating inflation in Germany, the Ifo Institute has claimed.

German consumer prices set to rise steeply amid war in Ukraine

According to the Munich-based economics institute, inflation is expected to rise from 5.1 to 6.1 percent in March. This would be the steepest rise in consumer prices since 1982.

Over the past few months, consumers in Germany have already had to battle with huge hikes in energy costs, fuel prices and increases in the price of other everyday commodities.

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With Russia and Ukraine representing major suppliers of wheat and grain, further price rises in the food market are also expected, putting an additional strain on tight incomes. 

At the same time, the ongoing conflict is set to put a dampener on the country’s annual growth forecasts. 

“We only expect growth of between 2.2 and 3.1 percent this year,” Ifo’s head of economic research Timo Wollmershäuser said on Wednesday. 

Due to the increase in the cost of living, consumers in Germany could lose around €6 billion in purchasing power by the end of March alone.

With public life in Germany returning to normal and manufacturers’ order books filling up, a significant rebound in the economy was expected this year. 

But the war “is dampening the economy through significantly higher commodity prices, sanctions, increasing supply bottlenecks for raw materials and intermediate products as well as increased economic uncertainty”, Wollmershäuser said.

Because of the current uncertainly, the Ifo Institute calculated two separate forecasts for the upcoming year.

In the optimistic scenario, the price of oil falls gradually from the current €101 per barrel to €82 by the end of the year, and the price of natural gas falls in parallel.

In the pessimistic scenario, the oil price rises to €140 per barrel by May and only then falls to €122 by the end of the year.

Energy costs have a particularly strong impact on private consumer spending.

They could rise between 3.7 and 5 percent, depending on the developments in Ukraine, sanctions on Russia and the German government’s ability to source its energy. 

On Wednesday, German media reported that the government was in the process of thrashing out an additional set of measures designed to support consumers with their rising energy costs.

The hotly debated measures are expected to be finalised on Wednesday evening and could include increased subsidies, a mobility allowance, a fuel rebate and a child bonus for families. 

READ ALSO: KEY POINTS: Germany’s proposals for future energy price relief

In one piece of positive news, the number of unemployed people in Germany should fall to below 2.3 million, according to the Ifo Institute.

However, short-time work, known as Kurzarbeit in German, is likely to increase significantly in the pessimistic scenario.

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