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EUROPEAN UNION

Steinbrück: Berlin not mulling nationalizing banks – for now

Germany does not need to nationalize any of its banks but this could change if the global financial crisis gets any worse, Finance Minister Peer Steinbrück told business daily Handelsblatt on Thursday.

Steinbrück: Berlin not mulling nationalizing banks - for now
Photo: DPA

“So far I don’t see the need for state takeovers in Germany because the German banking sector has been hit badly by the financial crisis but less hard” than in other countries, Steinbrück said. “But this might change as uncertainties about future developments are currently much too high.”

Berlin announced at the weekend a €50-billion ($68-billion) rescue package for Germany’s fourth biggest bank Hypo Real Estate (HRE), one of three of the country’s banks that have needed help over the past year. But Chancellor Angela Merkel’s government has so far not followed other European countries in partly or fully nationalising any of its lenders, such as Britain which on Wednesday pledged £50 billion ($64 billion) to buy stakes in the country’s banks.

Steinbrück also said ahead of Friday’s G7 meeting of finance ministers that the “most important task of all” was to agree on a relaxation of the accounting procedures that have been blamed for exacerbating the crisis for banks.

This procedure has been blamed for making the financial crisis worse for banks because it forces them to write down on their books the value of assets as soon as they fall. Prices for some assets such as shares have fallen sharply in the recent market turmoil.

“This must be applied in Europe quickly. If possible we should do it for the accounts for the third quarter (which ended on September 30) that will be prepared in the second half of October,” Steinbrück said.

The minister also said that the effects of the crisis as a whole on the German economy, Europe’s largest, would be “much more evident than we had expected until now.”

“The government will have to make a significant cut in its 2009 growth forecast,” he said.

The Financial Times Deutschland cited sources close to the government as saying that it will cut its forecast for economic growth next year to between zero and 0.5 percent from the current projection of 1.2 percent. The Economy Ministry declined to comment on the report.

Ireland extends bank guarantees

Ireland extended its blanket guarantee on personal and corporate bank deposits to five foreign-owned banks on Thursday, the Department of Finance said.

In addition to Ireland’s six major banks, the guarantee will also apply to Germany’s Postbank, Northern Ireland’s Ulster Bank, Britain’s HBOS, First Active, which is a unit of the Royal Bank of Scotland Group, and IIB Bank, a wholly-owned subsidiary of Belgium’s KBC Bank.

Ireland’s unilateral deposit guarantee, announced last week, was slammed by European countries as a decision that would distort competition, with Chancellor Merkel describing it as “unacceptable” because it distorted competition.

“Clearly, there will be some additional limitations and safeguards in relation to these operations to ensure that the support provided relates to liabilities arising from their position within the national economy,” rather than to their wider group, Irish Finance Minister Brian Lenihan said.

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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