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EUROPE

Schäuble warns Greece to reform for bailout

German Finance Minister Wolfgang Schäuble stepped up pressure on Greece on Monday, insisting the debt-laden country won’t get its next €12 billion bailout instalment without decisive economic reform.

Schäuble warns Greece to reform for bailout
Photo: DPA

His remarks followed a Sunday meeting of the 17 eurozone finance ministers, who agreed to hold off releasing the next €12 billion tranche of the bailout package until July. They are demanding the troubled Mediterranean nation pass austerity measures through its parliament including the privatization of public assets.

“First, Greece must fulfil the conditions. Then we can decide on a new programme so that the payout of the next instalment is possible,” Schäuble told broadcaster Deutschlandfunk.

If the country wouldn’t or couldn’t carry out the reforms, “this path cannot be taken,” he said.

The clear warning increases the pressure on Greek Prime Minister George Papandreou, who is trying to drum up support for his austerity measures to keep the bailout money flowing from the European Union and International Monetary Fund despite being besieged by public protests and dissent in his own party.

Schäuble also called on private creditors such as banks and insurance companies to voluntarily accept their share of the burden of a second Greek bailout package that is being negotiated. It was not in their interests for Greece to fall apart, he said.

The finance ministers in Brussels backed a plan for private investors to voluntarily bear some of the cost of the next Greek debt bailout. With the current bailout package no longer expected to be sufficient to keep Greece afloat, a second package, likely to total about €110 billion, the same as the first, is now being negotiated.

Under pressure from France, Germany watered down its original demand that private investors as well as taxpayers bear some of the brunt. The ministers in Brussels supported this compromise, stressing that private participation must be voluntary to avoid any perception that Greece is defaulting on its debt – which could destroy its international credit status.

“We have agreed that there should be a private-creditor participation, which should really be voluntary because we want to avoid any credit default or credit event,” Euro Group president Jean-Claude Juncker told reporters Sunday night, according to business news wire Bloomberg.

“But it also has to be clear that Greece has to bring about a situation where all the expected commitments are taken charge of. We depend very much that all legal processes are approved before the end of this month. Beginning of July we will have to continue to discuss the private creditor participation, which will be voluntary and we will have to check whether Greece has fulfilled all its obligations.

“Voluntary participation has to be voluntary which means that no pressure whatsoever can be exercised on the private sector.”

Germany had wanted a forced participation, which effectively would have amounted to a controlled default by Greece. On Friday, Chancellor Angela Merkel backed down and announced jointly with French President Nicolas Sarkozy support for a voluntary contribution.

The question now is whether enough banks and other large investors can be persuaded to voluntarily accept a so-called “rollover” of the Greek bonds they own, which would typically involve an extension on the term of the bonds or a pledge to buy new, repackaged bonds.

Juncker said another meeting would be held in early July to discuss details of the plan, he said. He also said it was impossible at the moment to predict how great a voluntary contribution would be.

“With a voluntary contribution by private creditors, one can’t predict in advance the size of this participation. This has to be discussed also with the private creditors.”

Papandreou faces a confidence vote in the Greek parliament on Tuesday night over his new cabinet, which he appointed to handle the current crisis. Juncker said the finance ministers in Brussels “reminded the Greek government forcefully that by the end of this month they have to work so that we are all convinced that all the commitments they made are fulfilled.”

The Local/djw

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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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