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ECONOMY

KfW slammed for mistakenly wiring Lehman €300 million

State development bank KfW was assailed by the German government on Wednesday for mistakenly transferring €300 million ($427 million) to Lehman Brothers just as the US investment bank was collapsing.

KfW slammed for mistakenly wiring Lehman €300 million
Photo: DPA

“We are working to shed light very quickly on this technical fault,” Finance Ministry spokesman Torsten Albig said. He called the transfer, which happened on Monday while the US investment bank was filing for bankruptcy protection, “inexplicable” as well as “astounding and annoying.” He also warned there would be consequences at the bank for the cock-up.

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.”

According to news agency DPA, officials at KfW frantically attempted to stop the transaction once they realized what was happening, however, they were unable to get their money back. Now KfW can only expect to have half of it returned via insolvency proceedings at Lehman Brothers.

This is not the first time KfW has been embroiled in the financial crisis sparked by the subprime lending mess in the United States. Earlier this year, KfW was forced to bailout the German industrial bank IKB to the tune of several billion euros.

The state development bank was to report to its supervisory board on the sale of IKB to a US investor this Thursday, but now the hot topic is certain to be the millions burned in the Lehman Brothers debacle.

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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