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Schäuble says markets acting irrationally towards eurozone

German Finance Minister Wolfgang Schäuble on Monday called market speculation over the eurozone's financial woes irrational, as he hailed a rescue deal that he said would put Ireland back on track.

Schäuble says markets acting irrationally towards eurozone
Photo: DPA

“The speculation on the international financial markets can barely be explained rationally,” Schäuble told German radio station Deutschlandfunk.

Countries are put under pressure, leading to “fear effects,” Schäuble said. “The markets can make a lot of money in this way,” he added.

Portugal “is under pressure at the moment and therefore it is important that Portugal implement the measures” announced to reduce its deficit, the minister said.

The minister also hailed an €85-billion ($113-billion) EU-IMF rescue package for Ireland after an emergency meeting on Sunday designed to head off the growing pressure on Portugal and Spain.

Schäuble’s comments came as the euro sank in Asian trade Monday with the Ireland deal failing to allay fears that the two southern European countries could be next in line for a rescue after seeing their borrowing costs soar.

Describing the package as a “big success for Europe,” Schäuble said: “I think this programme is suitable for Ireland and if it consistently implements what it has agreed, it can return to a solid and sustainable economy in a few years.”

He appealed for “a bit more calm and a bit more reality” in markets and said there were “no surprises” in new measures agreed by European finance ministers to ensure private investors contribute to the cost of future bailouts.

Ministers agreed that the private sector would in future share the burden after an existing emergency fund expires in 2013.

France and Germany on Sunday reportedly reached a deal that would make the private sector shoulder some of the burden of future EU bailouts only on a case-by-case basis.

The markets have been rattled by German Chancellor Angela Merkel’s proposal for investors to shoulder part of the costs of national bailouts but France’s Le Monde newspaper reported on Monday this would not happen automatically.

The deal would see government bonds coming with “collective action clauses” that would enable their terms to be reviewed in times of crisis, the paper said.

But this would be done on an ad-hoc basis and there would be no automatic expectation that the private sector would have to shoulder some of the burden, the paper said.

The Franco-German deal was being discussed Sunday at emergency talks in Brussels to settle Ireland’s bailout, a diplomatic source told news agency AFP.

EU economic and monetary affairs commissioner Olli Rehn “has put to finance ministers a proposal setting out the shape of the future mechanism,” the source said, which “foresees contributions on a case-by-case basis for the private sector.”

Le Monde said Merkel had hammered out the compromise Sunday in a telephone conference with French President Nicolas Sarkozy.

They were joined on the line by European Central Bank President Jean-Claude Trichet, EU President Herman Van Rompuy and eurozone chief Jean-Claude Juncker.

Merkel made clear on Thursday that a proposal for investors to shoulder part of the costs of national bailouts would apply only after an existing EU rescue scheme expired in 2013.

AFP/The Local

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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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