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EUROPEAN UNION

Berlin and Paris aim to block voting rights for EU deficit offenders

France and Germany said on Wednesday they want to suspend voting rights of EU member states which run up excessive deficits and to impose financial sanctions on them.

Berlin and Paris aim to block voting rights for EU deficit offenders
Photo: DPA

“Political sanctions such as the suspension of voting rights should be imposed on member states which infringe common engagements in a serious or repeated manner,” the two countries said in joint proposals.

“This mechanism should be included in any revision of the (European Union) treaty that is susceptible to be accepted in the future,” said the text published after Germany’s finance minister attended a French cabinet meeting.

But before any such treaty revision, “a political alternative, not legally binding, could take the form of a political accord permitting member states of the eurozone” to exclude the offending states from certain votes.

The proposals were due to be sent in a letter, signed by both France’s Finance Minister Chrstine Lagarde and her German counterpart Wolfgang Schäuble, to EU president Herman Van Rompuy.

Lagarde told reporters that she had also discussed with Schäuble the possibility of imposing “sanctions of a financial character, notably in the form of a deposit that an offending state would have to make.”

European governments agreed last week to create tough new sanctions against

countries that run excessive public deficits, including a halt of certain subsidies.

Public deficits exploded during the 2008-2009 global recession as European governments launched stimulus programmes to prop up their struggling economies.

Several governments in Europe have now begun to implement deep spending cuts and tax rises to reduce their deficits in the wake of a debt crisis that has rocked the continent.

The European Union’s Stability and Growth Pact requires member states to maintain fiscal discipline, notably by holding annual public deficits under 3.0 percent of output.

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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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