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ECONOMY

Germany moves to nationalise Hypo Real Estate

Shareholders in the troubled German bank Hypo Real Estate approved late Tuesday a nearly €3-billion capital increase to be subscribed by the state, one of the last steps in total nationalisation by Berlin.

Germany moves to nationalise Hypo Real Estate
Photo: DPA

Amid stormy debate, the almost 74 percent of shareholders represented at an extraordinary general meeting voted for a €2.95-billion ($4.23-billion) hike, allowing the state to obtain 90 percent of the bank’s shares.

Germany already owned 47.3 percent of HRE’s equity following a public offer for shares in May.

The state also represented a simple majority among shareholders at the general assembly, giving it the power to get the motion approved.

Once it effectively owns 90 percent of HRE, Germany can force remaining shareholders to sell their holdings via a “squeeze out” operation.

It will be Germany’s first full bank nationalisation since the republic’s birth in 1949.

The biggest losers will be some small investors and the former dominant HRE shareholder, US investment fund JC Flowers, which had sought to retain its stake in the troubled bank.

Berlin will not be forced to expropriate shareholders however, an option it held but was reluctant to exercise.

HRE, which has become a symbol of the financial crisis in Germany, has already benefitted since October from €102 billion in mostly public loan guarantees.

Earlier on Tuesday, bank boss Axel Wieandt said there was “no alternative” to nationalisation and stressed HRE would have gone bankrupt long ago without state aid.

Wieandt said in addition to the capital increase, HRE would need still more funds and additional state aid.

Germany decided to nationalise HRE via the government’s financial markets stabilisation fund SoFFin following concerns that the bank’s collapse would trigger financial market chaos.

The situation was likened to that faced by US investment bank Lehman Brothers, which went bankrupt in September, a move believed to have taken the global financial crisis to a far more critical level.

HRE is a pivotal part of Germany’s economy. In addition to its real-estate activities, the bank plays a major role in the issuance of “Pfandbriefe,” bonds in which small investors, savings banks and insurance companies have placed large sums.

Berlin nationalised banks during the 1930s Great Depression, a practice that was continued by the World War II Nazi regime.

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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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