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ECONOMY

Berlin mulls partial Hypo Real Estate nationalisation

The German government is considering partially nationalising distressed mortgage lender Hypo Real Estate (HRE), a spokesman for Chancellor Angela Merkel's CDU party told AFP on Wednesday.

“I can confirm there is some thought in this direction,” Otto Berhnardt, CDU (Christian Democratic Union) spokesman for financial affairs, said, adding that a decision could be make quickly.

A total of €50 billion ($66 billion) in cash and another €30 billion in loan guarantees provided to the bank so far appears not to have been enough to get its back on its feet.

On Thursday, Berlin said it would take a stake of 25 percent plus one share in Germany’s second biggest bank, Commerzbank, after pumping in another €10 billion.

It was the first time the government had acquired a stake in a private bank since the international financial crisis erupted in mid-2007 and made Berlin the biggest single shareholder in Commerzbank.

HRE, meanwhile, was a front-line casualty when the US market for high-risk, or subprime, mortgages collapsed, putting the global financial system under unprecedented stress.

Berlin has set up a banking sector rescue package that provides up to €80 billion in cash injections and €400 billion in loan guarantees to prevent a collapse of the country’s financial sector.

In December, HRE said it would slash its workforce by almost half in three years, part of a series of draconian moves to save it from bankruptcy. HRE and its Irish subsidiary Depfa were caught up in a liquidity crunch that worsened after the US investment bank Lehman Brothers declared bankruptcy in September.

HRE posted a net loss of €3.1 billion in the third quarter of 2008 and said that it expects additional losses in its fourth quarter and annual results.

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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