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ANGELA MERKEL

Merkel calls for tighter rules at G20 summit

German Chancellor Angela Merkel and Finance Minister Peer Steinbrück are lobbying for tighter global finance cooperation and regulation at the Washington G20 economic summit this weekend.

Merkel calls for tighter rules at G20 summit
Merkel and UK prime minister Gordon Brown at the summit Photo:DPA

Speaking ahead of the meeting, Merkel told the Sueddeutsche Zeitung, “I see a number of actors with which we can start working – there is for one, the forum for financial stability, in which the regulatory authorities and the central banks of the industrial countries work together.

“This forum has already prepared a whole row of suggestions, for example for the transparency of the finance markets and the regulatory structures, which are at least in part already implemented. This forum for financial stability must be expanded to include important developing countries.

“We must also consider how we can improve the cooperation between the national regulatory authorities and the various institutions, for example the international monetary fund and the forum for financial stability.”

She also said governments must better dovetail the bank-specific viewpoint of the regulators with the market-related viewpoint of the IMF, and strengthen the latter’s role. “In general, there must be no more blind spots in which risks can be built up unseen,” Merkel said.

Merkel has positioned herself at the more interventionist end of views at the Washington summit, saying the German social market model should become the basic model of the world.

“We are experiencing the excesses of the markets at the moment. These must be limited so that such a crisis is not repeated,” she told the paper.

She said the crisis was demonstrating the kind of damage which could be wreaked when what she called the necessary insight was missing internationally and structural limits were not tight enough.

“The international community must now ensure that they work together, and I expect that the banks support this process,” she said. “Therefore I have no understanding for the warnings against too much regulation and state influence – now, shortly after the state has prevented the situation from worsening. That is unreasonable.”

Her comments came as several organisations warned against introducing too much regulation. The German chamber of industry and trade, DIHK, warned the politicians not to go too far. Manager Martin Wansleben told the Tagesspiegel newspaper, too much regulation, “increases financing costs for companies, and reduce the business options.” He called for the G20 states to act reasonably.

He said he supported the German government’s proposal to create an international credit register which he said could make clear where risks lay.

But the German Industry Association, BDI, was more reserved, the paper reported, calling for concrete suggestions for a lasting stabilisation of the finance markets to limit the affect of the finance crisis on the real economy and avoid a further weakening of the world economy.

Jürgen Großmann, head of energy giant RWE said more regulation was not needed. “We do not need more regulation which strangles economic initiative, but improved international cooperation, for example, in the financial area, in order to close regulatory gaps,” he told the Handelsblatt newspaper.

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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