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FINANCE

Greece blames Berlin for Irish debt crisis

Greek Prime Minister George Papandreou blamed Germany on Monday for the spectacular rise in the borrowing costs of Ireland and Portugal last week, accusing Berlin of spooking the bond markets.

Greece blames Berlin for Irish debt crisis
Photo: DPA

Both Ireland and Portugal saw the cost of their debt shoot up last week amid fears they might be forced to seek bailouts or even default, as Germany pushed for private lenders to contribute to future rescue packages.

“Some have suggested, such as the German government, that markets and banks that financed nations with high debts, should be prepared to take the cost of a possible default,” Papandreou told reporters in Paris.

“That created a spiral of higher interest rates for the countries which seem in a difficult position such as Ireland and Portugal,” he added, even as Greece’s own massive debt came under renewed pressure.

“This could be a self-fulfilling prophecy. It’s like saying to someone: ‘Since you have a difficulty, I will put an even higher burden on your back.’ But this could break your back,” he charged.

Portugal and Ireland are struggling with burgeoning public debt and deficit levels and as a result have had to pay ever higher returns to bond buyers in order to raise funds.

Finance ministers from the 16 members of the eurozone single currency bloc are due to meet in Brussels on Tuesday for scheduled talks that are expected to focus heavily on the situation in Ireland and other big debtors.

Ireland is under pressure from some quarters to accept European Union aid to help it through its bad patch without further destabilising the currency.

European leaders agreed at a summit last month to discuss in December the issue of a permanent mechanism to replace the €440-billion ($607-billion) European Financial Stability Fund that expires in 2013.

Berlin is pushing for a procedure to be drawn up in case a eurozone country goes bankrupt, insisting that bondholders should take their share of the costs rather than the public picking up the tab.

While this future provision would not change the EU member’s commitment to the existing crisis fund, Germany’s position sent tremors through the bond markets, contributing to pressure on Ireland’s bond yields.

For his part, Papandreou said the long-term debt problems of EU member states exist because of a “lack of democratic control” on financial markets, and called the campaign for tighter regulation a “battle for civilization.”

AFP/mry

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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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