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EUROPEAN UNION

The euro will not fail, Schäuble says

German Finance Minister Wolfgang Schäuble on Saturday warned speculators on the financial markets not to bet against the euro, as European leaders prepared for a summit next week to shore up the embattled currency.

The euro will not fail, Schäuble says
Photo: DPA

“Whoever bets his money against the euro will not succeed,” Schäuble told the mass circulation weekly Bild am Sonntag, in an interview to appear in Sunday’s edition.

“The euro will not fail,” added the minister, amid speculation that debt crises in some countries of the 16-nation zone could bring down the currency.

“All those in charge in Europe are agreed: The euro brings us all advantages. And therefore we will successfully defend it,” Schäuble added.

The finance minister also set out the stakes if the crises in Ireland and Greece were to spread to Portugal, Spain and others, forcing one of the countries from the eurozone.

“Even if one of the small countries were to leave, the consequences would be incalculable,” Schäuble said.

“And when I look back at the effects of the Lehman Brothers crash, I say, ‘Let’s not make the same mistake twice,'” he concluded, referring to the collapse of the large US investment bank that sparked the financial crisis.

EU leaders will meet in Brussels on Thursday and Friday to discuss setting up a permanent crisis fund for the euro area after its current fund expires in 2013.

The EU decided on May 9 to create a €750-billion ($992-billion) joint fund with the International Monetary Fund, a mixture of loans and guarantees from eurozone and EU partners for troubled states.

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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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