German bankers call for ‘bad bank’ to restore confidence

Several German bankers have called for the creation of a "bad bank" to buy devalued assets and risky loans in order to unblock interbank lending, a press report said on Tuesday.

German bankers call for 'bad bank' to restore confidence
Merckel with Ackermann at the summit on Sunday. Photo: DPA

Hundreds of billions of euros in fresh asset writedowns still threaten German banks, head Deutsche Bank Josef Ackermann told the Financial Times Deutschland.

Ackermann made the comments on Sunday during a crisis summit hosted by Chancellor Angela Merkel in Berlin, a source told the paper.

By allowing banks to dump bad assets and troubled loans, the proposed bank would help restore confidence between banks that was shattered by the financial crisis, leading to a squeeze on interbank lending and tighter credit to the economy at large.

But Germany’s ruling coalition pointed out that €400 billion ($550 billion) in loan guarantees for the banking sector were designed with the same aim in mind, to jumpstart lending between banks, the report said.

Ackermann and Klaus-Peter Mueller, president of the German federation of private banks, say those guarantees distort competition in favour of banks that have state-backed guarantees and make conditions harder for those that have not used the 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.