Berlin working on a ‘bad bank-lite’ rescue plan

Germany is working on ways to help its banks get rid of toxic securities that have kept them wary about lending despite last year's €480-billion ($625-billion) rescue, a lawmaker said Thursday.

Berlin working on a 'bad bank-lite' rescue plan
Frankfurt, the city of German banks. Photo: DPA

“Several solutions are currently being constructively studied in order to limit the amount of write-downs by banks,” Otto Bernhardt, an MP in Chancellor Angela Merkel’s conservative party who deals with financial affairs, told AFP. “The main issue is finding a way of helping banks further without leaving an open-ended bill for taxpayers to pick up,” Bernhardt said.

He added, however, that there was “no chance at the moment” that Merkel’s government would create a “bad bank” to absorb the huge amount of toxic assets still on banks’ balance sheets.

Instead, they are working on a ‘bad bank-lite’ that would take on banks’ bad assets but write down any loss in value once the assets mature, which in some cases would not happen for 50 years, business daily Handelsblatt reported.

German newspapers have cited a Bundesbank survey of 20 large German banks revealing that they have written off only around a quarter of their collective bad assets of some €300 billion.

Merkel’s government rushed through last year’s package in record time after the worst crisis in the global financial system since the 1930s left banks in Germany and around the world close to collapse.

Similar to efforts in other countries, it provides up to 400 billion euros in loan guarantees and as much as €80 billion in fresh capital.

But banks have been slow to make use of the scheme and firms already reeling from the global economic slump have complained they are unable to get enough loans – in other words, that the “credit crunch” is still here.

Guenther Merl, the head of the body in charge of the rescue fund, known as Soffin, resigned this week – officially for health reasons but media reports said he had differences with the government.

The biggest casualty so far has been Hypo Real Estate, the stricken property lender that has already been given more than €40 billion worth of government loan guarantees and which reportedly may yet be nationalised.

Commerzbank, the second largest lender, is set to be partially nationalised with Berlin taking a 25 percent plus one share stake in return for €10 billion in fresh capital.


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.