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ECONOMY

Merkel demands better global financial regulation

German Chancellor Angela Merkel on Wednesday called for tighter regulatory control on the international financial system following the recent turmoil on Wall Street.

Merkel demands better global financial regulation
Photo: DPA

“We are in desperate need of an improved regulatory framework,” Merkel said in a speech to parliament, saying only moderate progress had been made since Germany pressed for greater transparency as head of the G8 in 2007. “We cannot stand by and do nothing. Politicians must act,” she said.

She said that the much-criticized rating agencies that assess companies’ financial health should be subject to a code of conduct. Merkel also added her voice to those seeking to calm the public, saying that the effect on the German economy from the current crisis looked set to be “moderate,” but would not leave the country “completely unscathed.”

“The federal government is watching developments with the utmost attention,” she said.

But German state development bank KfW admitted on Wednesday it had mistakenly transferred €300 million ($427 million) to US investment bank Lehman Brothers just prior to its collapse.

“We are working to shed light very quickly on this technical fault,” Finance Ministry spokesman Torsten Albig said. The tranfser happened on Monday as the US investment bank was filing for bankruptcy protection.

A KfW spokesman told the Frankfurter Allgemeine Zeitung newspaper that there had been “an erroneous swap payment on Monday … the reasons for which are being examined internally.”

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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