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FINANCE

Cabinet backs wider ban on naked short trading

Germany's cabinet on Wednesday approved a draft law expanding a ban on naked short selling which angered its international partners to include all stocks traded in Germany.

Cabinet backs wider ban on naked short trading
Photo: DPA

The ban “concerns securities that are registered on a regulated German market,” a Finance Ministry spokesman said.

It also encompasses certain trades on currencies that are not used for hedging purposes, although this can be implemented in times of crisis, not as a permanent measure – a slight watering-down of the original proposals.

A previous version of the draft law had envisaged a complete ban on short selling currency derivatives.

German Finance Minister Wolfgang Schäuble on Wednesday said naked short selling had been used on a “no longer controllable scale” during the recent eurozone financial crisis sparked by Greece’s debt problems.

“That’s why were are banning them,” he said.

Last month, Germany rocked its European partners and roiled markets worldwide by unveiling, out of the blue, a ban on naked short selling of sovereign bonds and credit default swaps.

The surprise move, by Germany’s financial regulator, was introduced unilaterally and without informing other G20 countries.

Naked short selling is effectively a bet that a certain stock or government bond will go down on the markets. But unlike conventional short selling, a trader does not even borrow the stock or bond before it is traded.

The practice came under fire as the Greek debt crisis escalated. Many analysts said that such trades artificially inflated Greece’s funding costs.

Critics of the practice also say it can create highly damaging volatility on financial markets.

However, most short selling takes place in London and it is not a common practice in Germany.

Defending the ban at the time, Berlin said it wished to “send out a clear signal to the markets that we want to act where we are able to … in order to tackle excessive speculation.”

The draft bill now passes to the German parliament, where Chancellor Angela Merkel’s centre-right coalition holds a clear majority.

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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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