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Merkel snubs calls for more stimulus

German Chancellor Angela Merkel said throwing too much money into reviving global economic growth would make the recovery unsustainable, in comments published Saturday.

Merkel snubs calls for more stimulus
Photo: DPA

Merkel snubbed calls to spend more public money in Germany as part of a coordinated international stimulus effort, in an interview with the Financial Times newspaper.

She told the British business daily that the business of putting the global economy back in order would not be finished at Thursday’s G20 summit in east London.

“This crisis did not come about because we issued too little money but because we created economic growth with too much money, and it was not sustainable growth,” Merkel said. “If we want to learn from that, the answer is not to repeat the mistakes of the past.”

She also warned against inflated expectations from next week’s gathering of top world leaders in Britain.

“We are talking about building a new global financial market architecture and we will not be able to finish this in London,” she said. “We will naturally not solve the economic crisis either, and we won’t solve the issue of trade. We will definitely need to meet again.”

The chancellor was sceptical about moves for looser monetary policies and bigger public deficits as a way to battle the downturn.

Merkel said she would “expect to see a return to sustainable fiscal policies after the crisis”, saying “states cannot borrow forever.”

“We must look at the causes of this crisis. It happened because we were living beyond our means… governments encouraged risk-taking in order to boost growth. We cannot repeat this mistake. We must anchor growth on firmer ground,” she added.

“We were spending too much to create growth that was not sustainable. It isn’t just that the banks took over too many risks. Governments allowed them to do so by neglecting to set the necessary (financial market) rules and, for instance in the US, by increasing the money supply too much.”

Playing down the notion of a rift between Europe and Washington, she praised US President Barack Obama for being ready to reform financial markets. “We are coming together to make joint decisions, not to compete against each other,” Merkel said.

“We all want the same thing: to put the world economy back on its feet as fast as possible and to prevent such a crisis from happening again.”

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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