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FINANCE

Merkel warns banks over tight lending habits

Chancellor Angela Merkel stepped up her warning on Saturday of a further credit crunch in Germany as she called on banks to meet their “responsibility” to lend money and help the nation’s fragile economic recovery.

Merkel warns banks over tight lending habits
Photo: DPA

“We have to realise here, that we are in a very critical situation,” she said in her weekly video address. “Therefore we say very clearly that we also call on financial institutions to fulfil this responsibility,” she said.

While stressing banks had to lend responsibly, they also had a duty to all of society as the source of vital capital for the economy, she said.

In October, nearly 42 percent of German companies questioned by the economic research institute Ifo said credit conditions were still restrictive in Germany, Europe’s biggest economy.

Another poll by the chambers of commerce and industry found that 26 percent of German firms felt it had got harder to obtain credit from banks, the main source of financing for eurozone companies.

For this reason, the government would propose a “credit mediator” at a scheduled economic discussion on Wednesday, Merkel said. Such an independent mediator would help businesses to get credit at reasonable rates.

Representatives of business, unions, banks and academia would take part in Wednesday’s summit, she said.

Stressing the economic crisis was not over for Germany, she said further pain would be felt in the next few months in the job market. The cost of rising unemployment and the Kurzarbeit scheme, whereby the government subsidises employees on shorter working hours rather than letting their firms lay them off, would be met by the nation as a whole, not just the workers and firms affected, she said.

Her call for more lending follows similar demands from her cabinet colleagues, who are ramping up pressure on the banks. Recently, Economy Minister Rainer Brüderle said German banks had a responsibility to the nation because of the hundreds of billions of euros that had been spent on bailing them out in the past two years.

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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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