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ANGELA MERKEL

Merkel pressures banks to tap rescue packages

German Chancellor Angela Merkel criticized banks on Wednesday for being too proud to tap Berlin's €480-billion ($625-billion) rescue package and lend more money to recession-hit firms.

Merkel pressures banks to tap rescue packages
Photo: DPA

“Confidence between banks is still not at the level that it should be,” Merkel said in a speech to parliament during a debate on the federal budget, saying that banks should not refuse help based on “false prestige.”

“It is the responsibility of financial institutions to give loans to companies that need them,” Merkel said.

Merkel’s rescue package provides up to €80 billion to banks needing fresh capital and allows for up to €400 billion worth of loans to be backed by cast-iron government guarantees to kickstart frozen lending.

But since the measures were rushed through parliament in October few banks have made use of them, particularly in the private sector, fearing that being seen to need help from the government would tarnish their reputations.

They are also wary of strict conditions placed by the government on lenders that make use of the rescue measures that include caps on bankers’ salaries.

In a speech on Tuesday, Merkel likened the banks to “cold blooded creatures in winter … They don’t move. They are alive but they don’t do what you expect.”

Germany entered a recession in third quarter and Finance Minister Peer Steinbrück conceded on Tuesday for the first time that Germany’s GDP could contract by as much as one percent in 2009 – the steepest decline since 1945.

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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