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ECONOMY

Munich Re boss warns German banks still under threat

The international financial crisis could claim more victims among German banks, the head of re-insurance giant Munich Re warned.

Munich Re boss warns German banks still under threat
Photo: DPA

“Other cases are possible,” Nikolaus von Bomhard told reporters late on Tuesday in the northern port of Hamburg. “We have not seen the end of it.”

He said banks had not yet finished accounting for risky assets on their books, ahead of third-quarter earnings reports to be published in the coming weeks.

German banks have been among the high-profile cases that emerged after the crisis was sparked more than a year ago by the collapse of the US market for high-risk, or subprime mortgages. They had invested heavily in complex securities backed by risky loans on which borrowers have defaulted in large numbers.

Banks such as IKB, SachsenLB and Hypo Real Estate have either been thrown rescue lines worth billions of euros or been taken over by other German banks.

The biggest private German banks, Deutsche Bank and Commerzbank, have also written off billions of euros from the value of investments exposed to the financial crisis, but are not currently believed to be at risk. On Wednesday, German lawmakers were debating a proposed €480-billion ($655-billion) bail-out package for the country’s banks.

The plan includes up to €80 billion in fresh capital for banks and €400 billion in guarantees to jumpstart stalled lending on crucial interbank money markets.

Von Bomhard, the head of one of the world’s biggest reinsurance companies, excluded however a bankruptcy on the scale of US investment bank Lehman Brothers a month ago, a Munich Re spokeswoman told AFP on Wednesday.

Several German banks could nonetheless seek aid contained in a proposal being considered by lawmakers in Berlin, von Bomhard said. Munich Re would not however, because “we have reduced our risky credits considerably in the past few years, which is why we are in a good position now,” the insurance boss 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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