Merkel says debt biggest danger to Europe

German Chancellor Angela Merkel on Friday called on fellow European countries to slash their deficits, warning that debt is the main threat to the economies of the crisis-hit eurozone.

Merkel says debt biggest danger to Europe
Photo: DPA

“Indebtedness is the biggest danger for prosperity on this continent. This is why we have to resolutely work against it,” Merkel told business leaders gathered at the Davos meeting of the World Economic Forum.

The leader of Europe’s biggest economy also renewed her pledge to defend the bloc’s single currency, adding that “there is no doubt about this and we need to pursue a policy of euro stability.”

Germany has been pushing for reforms in the eurozone, calling for indebted countries such as Greece and Ireland to reduce their borrowing and Merkel pointed to her own country as an example.

“Budget consolidation remains of prime importance to us and has not caused us any problems, quite the opposite,” said Merkel.

The German economy has rebounded strongly from a deep recession to register record output last year and Merkel noted that her country, the world’s second-biggest exporter after China, had also reduced its reliance on exports.

“Consumer confidence has returned to Germany and we have a strong boost to

domestic consumption,” she said.

“That to me shows that sound fiscal policy and growth do not need to be a contradiction in terms,” she argued.

Merkel echoed earlier comments at Davos from French President Nicolas Sarkozy, who pledged that Paris and Berlin would “never abandon the euro.”

“There is no crisis of the euro as such. This is essentially a debt crisis … we now have to overcome it,” she told the assembled delegates.

“If the euro fails, then Europe fails,” she reiterated.


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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.


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.