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ECONOMY

Deutsche’s Ackermann calls for European financial safety net

Europe should prepare a financial markets safety net similar to one being cobbled together in the United States, the head of the biggest German bank, Deutsche Bank, said on Wednesday.

Deutsche's Ackermann calls for European financial safety net
Photo: DPA

“If the United States has a rescue plan, Europe should be ready to offer similar solutions” in the event of an emergency, Deutsche Bank’s CEO Josef Ackermann said according to Dow Jones Newswires.

Private banks and governments should be able to respond to “systemic risks” to financial markets, the German banker said.

Some economists have warned that leading European banks have high leverage ratios of total assets to shareholders’ equity, which in the event of trouble could mean they would need help similar to that extended to banks in the United States, Iceland, Ireland and the Benelux countries.

The German government said on Wednesday it expects swift approval by the European Commission of a rescue plan for property lender Hypo Real Estate.

“We are sure of … a swift and positive response by the European Commission,” a Financy Ministry spokesman told a press conference. He said the German plan was “no different from what has been done recently in the Benelux countries or Great Britain,” in reference to bailouts of the Franco-Belgian bank Dexia and British lender Bradford & Bingley.

On Monday, the German government and private banks unveiled a rescue plan for Hypo Real Estate, the future of which nontheless remains uncertain.

Berlin is to guarantee a large part of a €35-billion ($50-billion) credit line drawn up to keep Hypo Real Estate in business.

In Brussels meanwhile, the Commission said it was opening an in-depth investigation into the German government’s rescue plan for another German financial institution, the regional bank WestLB.

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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