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ECONOMY

Steinbrück open to ‘bad bank’ to ease toxic investments

German Finance Minister Peer Steinbrück is open to the establishment of controversial "bad banks" to help out the country’s financial institutions by taking over their risky investments and loans, daily Berliner Zeitung reported on Thursday.

Steinbrück open to 'bad bank' to ease toxic investments
Photo: DPA

While he said he was against creating a central bad bank from tax payer money, he asked whether “every institution couldn’t have the opportunity to remove problem investments from their balance and start new.”

This strategy would mean that each bank was responsible for itself, he said. “The separated ‘good bank’ would then have to be helped through the bailout plan,” he added.

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 package without making taxpayers suffer, lawmakers said last week.

But many politicians have rejected the idea of a bad bank, as has president of Germany’s central bank the Bundesbank, Alex Weber. One solution on the table has been dubbed a “bad bank-lite,” which 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.

Meanwhile Chancellor Angela Merkel’s government finished a stimulus package this week that promises to pump money into infrastructure and cut taxes after the country’s worst crisis since World War II.

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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