EU questions Commerzbank bailout

The European Commission raised doubts on Wednesday that a massive capital infusion for German bank Commerzbank was in line with the terms of a bank bailout package it approved last week.

Commerzbank became on Monday the first private German bank to tap into a government rescue fund’s cash component by seeking a capital injection of €8.2

billion ($10.5 billion) in exchange for preferred shares.

However, the spokesman for competition issues Jonathan Todd said the preferred shares had been reported by the press to pay a lower yield to the state than the minimum 10 percent required by German bailout package.

“We now have some various basic information … from the German authorites, but at first sight these figures don’t appear to be in line with the German rescue scheme that was approved last week,” Todd told journalists. “Therefore, this particular capital injection for Commerzbank will need to be examined by the commission.”

In Berlin, German Finance Minister Peer Steinbrück said the aid fell “within the framework” of the government’s package which has already been approved by the EU Commission.

The Commission approved on Tuesday the German plans to support its financial sector, judging that the aid would not distort competition as it was drafted.

“It’s the Commission’s duty to ensure a level playing field and to ensure that low remuneration of capital does not give rise to distortions of competition,” Todd said. “We expect the German authorities to provide us with full information so that we can conduct a full asessement of the measures for Commerzbank.”

Steinbrück told a press conference in the German capital that the commission’s doubts “were a question of exchange of information” and said he had “no doubt” as to Germany’s ability to provide a satisfactory response.

“These are discussions between Berlin and Brussels, it is not up to us to express ourselves on the subject,” a Commerzbank spokesman told AFP.

It is normal for the commission to inspect public aid, it has already done so for other European banks in Benelux countries,” he added in a reference to Belgium, Netherlands and Luxembourg.

The German package contains up to €80 billion in capital injections and up to €400 billion in guarantees for interbank loans.

Another private German bank, Hypo Real Estate, has obtained €15 billion in state loan guarantees under the plan, and several state-owned regional banks have applied for both types of aid.


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.