Germany unveils €17.5-billion plan to fight credit crunch

Germany on Tuesday unveiled a €17.5-billion ($25-billion) plan to fight lingering credit crunch problems in Europe's largest economy by lending directly to banks and bolstering insurers.

Germany unveils €17.5-billion plan to fight credit crunch
Economy Minister Karl-Theodor zu Guttenberg gets things rolling again. Photo:DPA

The package is part of a larger €115-billion fund designed to unlock credit in the economy in a bid to get business rolling again. But it has enjoyed only limited success so far.

Presenting the latest plan, Economy Minister Karl-Theodor zu Guttenberg said it was aimed at Germany’s famous Mittelstand – the small and medium-sized firms that make up the backbone of the economy.

“We want to ensure that small and medium-sized companies in particular can gain access to enough credit, even in economically difficult times, to carry out important projects,” he said in a statement.

The plan, which does not involve new money injected by the state, consists of two parts.

A pot of €10 billion has been laid aside to be lent to the state-backed development bank KfW, so it can in turn lend to businesses. A further €7.5 billion will be made available as export guarantees to encourage firms to sell abroad and bolster companies that insure exporters against defaults, the ministry said.

Additional details still need to be worked out, however, and the scheme will not be definitively put in place until October or November this year, the ministry said.

Business groups have warned that a continued credit crunch in Germany could throttle a promising uptick in activity that saw the economy recover in the second quarter of the year from its worst recession in over 60 years.

“Politicians must arm themselves for the situation to worsen,” the director-general of German employers’ group, Werner Schappauf, the BDI, told Handelsblatt.

“The first tender green shoots of recovery could quickly dry up if companies find themselves without liquidity,” he said.

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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.