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EUROPEAN UNION

Regulator Bafin freezes Icelandic bank Kaupthing operations

The German financial market watchdog BaFin has placed a moritorium on German operations of the biggest Icelandic bank Kaupthing, following its nationalization.

Regulator Bafin freezes Icelandic bank Kaupthing operations
Photo: DPA

Some 30,800 clients in Germany had accounts with the Icelandic bank, a BaFin statement said.

BaFin “was obliged to take this decision to protect assets in the German subsidiary” because the parent group “was no longer in a position to provide it with sufficient liquidity,” the statement added.

The German unit had total assets of €308 million ($420 million), but its internet site said late Thursday that “no withdrawals are currently possible.”

According to the Friday edition of Financial Times Deutschland, around €200 million have been withdrawn from German accounts this week, however. Kaupthing’s operations in Britain, Belgium, Finland, Luxembourg and Sweden have been halted as well.

Icelandic authorities have nationalised the country’s three biggest banks in recent days as the nation’s economy verges on collapse amid the global financial crisis. Observers there say the coalition government of Icelandic Prime Minister Geir Haarde risked implosion.

The International Monetary Fund said Monday it had sent a team to Iceland to examine the situation, although Haarde said Reykjavik had not asked for any economic aid from the organization.

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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