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FINANCIAL CRISIS

Business confidence hits pre-crisis high

German business confidence has regained levels not seen since before the global financial crisis, the Ifo economic institute said on Wednesday in the latest sign of strength in Europe's biggest economy.

Business confidence hits pre-crisis high
Photo: DPA

“The German economy remains robust,” Ifo president Hans-Werner Sinn said in a statement as the closely watched climate index climbed to 106.7 points from 106.2 points in July, marking the highest level since June 2007.

Analysts polled by Dow Jones Newswires had forecast on average a slight decline to 106 points following a record jump by the poll of 4.4 points in July.

The latest improvement fortified the sharp increase seen a month earlier, the biggest increase since German reunification, Ifo said.

The survey was released a day after official data confirmed German output grew by 2.2 percent in the second quarter from the previous three-month period, the biggest quarterly increase since east and west Germany were reunified in October 1990.

The German central bank and most economists now forecast full-year growth of at least 3.0 percent, compared with weaker activity elsewhere in the 16-nation eurozone, Japan and the United States.

“In contrast to sentiment indices in other countries, the Ifo survey has remained at an elevated level, suggesting above-trend GDP (gross domestic product) growth in Germany – growth which is still supported by a favourable labour market situation,” Barclays Capital economist Thorsten Polleit said.

German business sentiment has now reached its highest level since before the global financial system was slammed by a meltdown of the US market for high risk mortgages in mid-2007.

Tempering the euphoria, however, Ifo also said business expectations for the next six months edged slightly lower to 105.2 points from 105.5 points a month earlier.

Nevertheless, analysts had expected a bigger drop to 104.9 points.

The institute surveys some 7,000 German manufacturing, construction, wholesale and retailing companies each month to establish its key snapshot of business sentiment.

It found in the manufacturing sector that while the current climate was better than in July, the six-month outlook was “still very confident, though somewhat less so than in the previous month.”

Many economists and business leaders expect Germany’s strong rebound from a record post-war recession to taper off in the coming months.

But the government is expected to raise its current official forecast of 1.4 percent growth in October in light of strong exports, industrial order books that are still filling up and a pick up in investment and domestic consumption.

“For the time being and for rest of the year, just processing the received orders could be enough to bring annual GDP growth to levels hardly seen since reunification,” ING senior economist Carsten Brzeski said.

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FINANCIAL CRISIS

US investors buy up north German state bank hit by financial crisis

Two German states said Wednesday they would sell troubled maritime lender HSH Nordbank in the first full privatisation of one of the regionally-owned "Landesbank" lenders hit badly by the financial crisis.

US investors buy up north German state bank hit by financial crisis
Photo: DPA

Leaders from Hamburg and Schleswig-Holstein states said at a news conference they would sell their 95-percent stake for one billion euros to investors led by two US funds, J. Christopher Flowers and Cerberus capital.

The European Commission ordered a change of ownership in exchange for its approval in 2009 of a €13-billion-euro rescue – one of two taxpayer-funded bailouts for the north German bank since the 2007-2008 financial crisis.

That rescue plan helped cover risky investments amounting to €60 billion, most of them in real estate and the shipping sector, which HSH built up in the pre-crisis years.

“Today we've reached an important milestone on the way to selling the states' holdings in HSH,” which had over the years proved “very costly to the taxpayer,” Schleswig-Holstein state premier Daniel Günther said.

Wednesday's deal must still earn a green light in a further competition probe by the Commission and from banking supervisors at the European Central Bank.

If it goes ahead, “the privatisation means that we can limit the damage to the states that has resulted from the bank's irresponsible strategy of expansion between 2003 and 2008,” Hamburg mayor and future federal finance minister Olaf Scholz said.

The sale was immediately criticized by Sahra Wagenknecht, leader of Die Linke (the Left Party), who described it as a gift to “the finance mafia.”

“Future profits will be privatized, tax payers will lose multiple billion euros and jobs are at risk – whoever calls that a success doesn't deserve to be finance minister,” she wrote on Twitter.

Hamburg and Schleswig-Holstein have taken on a portfolio of HSH's bad loans, meaning taxpayers could face a bill of up to €7 billion when they are eventually sold to private buyers.

The contract for Wednesday's sale also provides for HSH's payroll to be halved, to around 1,000 workers.

HSH's departure into the private sector leaves just five of the “Landesbank” lenders standing after a series of post-crisis interventions.