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Germany defends short-selling ban

Germany on Wednesday defended its decision last week to ban naked short selling, saying it wanted a "signal to markets" it will not tolerate "excessive speculation" regardless of international criticism.

Germany defends short-selling ban
Photo: DPA

“We announced our intention to introduce the ban at the start of the year, and if I remember correctly, this got a positive reception,” Finance Ministry spokesman Michael Offer told a regular government news conference.

“The fact that we acted sooner was because of market volatility in the wake of the Greek (debt) crisis and the euro crisis. Where we are able to act nationally, we will do so.”

Germany’s financial regulator BaFin last week unveiled a ban on naked short-selling of certain stocks, eurozone government bonds and credit default swaps, a kind of protection against default by state borrowers.

Naked short selling is when an investor sells on the market a stock or other asset they do not own or have not even borrowed, aiming to buy it back later at a lower price to pocket a profit. It can create highly damaging volatility on financial markets.

But Berlin came under fire for the move, with critics saying that Germany had failed to inform properly its partners in the European Union or in the Group of 20 top global economies beforehand. It also rocked financial markets.

“I do not see that we acted in an uncoordinated manner,” said Offer. “The measures … must be seen in the context of a package of decisions taken by the Ecofin (EU finance ministers) to ensure stability in the entire eurozone.”

On Tuesday, leaked documents from the Finance Ministry showed that Germany wanted to go further, extending the ban to cover all shares listed on its stock exchanges and certain other financial instruments.

The cabinet of Chancellor Angela Merkel, who will attend a G20 summit in Toronto on June 26-27 set to be dominated by financial regulation, aims to examine the additional measures next week.

“We want to deal with other points with this bill, further bans that so far have not been imposed by BaFin,” Offer said.

“In doing this, we want to send out a clear signal to the markets that we want to act where we are able to, where we are able to act on a national basis, in order to tackle excessive speculation, speculation in general … and to calm markets and to boost confidence in capital markets.”

US Treasury Secretary Timothy Geithner, in London on Wednesday, was due to meet the head of the European Central Bank in Frankfurt later in the day and German Finance Minister Wolfgang Schäuble in Berlin on Thursday, to prepare for the G20 summit.

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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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