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FINANCE

Union leader, Merkel at odds over financial transaction tax

Germany’s top union boss called on Chancellor Merkel Sunday to “stop the gamblers” and enact a tax on financial transactions to stave off rampant speculation.

Union leader, Merkel at odds over financial transaction tax
Photo: DPA

Speaking at the opening of the conference for the Confederation of German Trade Unions, the umbrella group representing eight top unions and about 7 million workers, chairman Michael Sommer said the country’s “patience for greed and avarice is at an end.”

Sommer predicted that speculators betting on Greece’s debt would eventually target other countries with ballooning deficits, like Spain, Portugal, Ireland and Italy – and ultimately turn toward Germany.

During her speech at Sunday’s conference, Chancellor Merkel rejected the notion of a tax on financial transactions, saying it would affect businesses. She also defended the bank levy system, which would see banks pay into a fund earmarked for future crises.

“The bank levies are appropriate, but they shouldn’t be the only mechanism,” Merkel said.

Sommer said such requirements were “not a reasonable alternative.” He also criticized financial institutions for continuing to speculate, despite having received billions in government bailout funds.

“That the financial sharks show their gratitude by gambling against entire countries, endangering the euro … is a disgrace,” he said.

Wolfgang Kubicki, leader of the pro-business Free Democrats party group in Schleswig-Holstein’s state parliament, also voiced his support for a tax on financial transactions – a departure from the FDP’s party line – in an interview with Welt Online posted Sunday.

“I’m also a supporter of a temporary financial transaction tax,” Kubicki said, adding that tax burden should be reduced for smaller and mid-range earnings.

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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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