Germany sets tough rules for bank bailouts

The German cabinet finalised on Monday the conditions under which banks can make use of a €480-billion ($650-billion) rescue package rushed through parliament last week.

Germany sets tough rules for bank bailouts
Members of the Left party protest in front of BayernLB. Photo: DPA

If banks hit by the financial crisis apply for support their executives may earn no more than €500,000 ($673,000), and each lender is restricted to receiving €10 billion ($13.46 billion) in capital, a Finance Ministry spokesman said.

Any dividend payments must go to the state’s and the government can also

force banks to reduce or give up entirely particularly risky lending practices, as well as to continue making loans to small and medium sized firms.

The government can also buy up toxic assets from banks but this is limited to €5 billion worth per lender.

The programme passed by lawmakers on Friday includes €400 billion in loan guarantees in order to get banks lending to each other and up to €80 billion to shore up banks’ balance sheets battered by the financial crisis.

So far, no bank has signalled its intention to apply for aid under the rescue package but press reports said that the regional Bayerische Landesbank (BayernLB), the Bavarian state-owned lender, could be among the first.

The regional bank could require “billions of euros” in liquidity, state guarantees, and state purchases of high-risk instruments, the daily Bild cited Bavaria’s finance minister Erwin Huber as saying on Monday.

The rescue package, the biggest in postwar Germany, was similar to other measures announced by Germany’s partners in the 15-country eurozone along the lines of a British programme after crisis talks in Paris on October 12.

But Deutsche Bank chief Josef Ackermann, no stranger to controversy, raised hackles in the German cabinet on Monday for comments allegedly denigrating banks that turn the state for help.

Ackermann told the weekly newsmagazine Der Spiegel in its latest edition: “I would be ashamed if we were to take state money during this crisis.”

Such comments sparked anger and indignation at a meeting of the German cabinet on Monday, government spokesman Thomas Steg told a news conference in Berlin. Steg described the remarks as “totally incomprehensible” and “objectionable”, particularly since Ackermann had been one of the bank heads to call for state aid for the crisis-ridden financial sector in the first place.

Furthermore, banks had been fully and continously consulted when drawing up the rescue package rushed through parliament last week in an attempt to restore calm to the financial markets, the spokesman noted.

Steg said that, far from deserving shame, a bank that turned the state for aid should be seen as being “courageous” and “responsible.”


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.


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.