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EUROPE

Banks demand incentives to back Greek bailout

German banks indicated on Tuesday they want incentives before agreeing to take part in a bailout of Greece, saying they have €10 billion to €20 billion ($14 billion - $28 billion) invested in the country's bonds.

Banks demand incentives to back Greek bailout
Photo: DPA

“I expect all investors will participate, as long as the whole package that is being put together, and there are lots of facets to consider, looks good,” said Michael Kemmer, head of the German banking federation (BdB).

“It is understandable that there will have to be incentives because at the end of the day if someone has entrusted you with money … then you have a responsibility for this capital,” he said.

Greece has debts of some €350 billion and needs a second bailout worth more than €100 billion after a €110-billion package by the European Union and the International Monetary Fund last year proved insufficient.

Eurozone finance ministers want holders of Greek bonds – primarily banks, insurers and pension funds – to take part, possibly by agreeing to a rollover, whereby investors buy new bonds to replace ones that mature.

In doing so they have to ensure that involvement by private investors is viewed as voluntary, otherwise rating agencies could declare Athens to be in default, something which could have dramatic consequences.

Kemmer said that a rollover was one of “many conceivable intelligent ideas” and that one possible incentive might be government guarantees on the bonds.

He added that it was difficult to give the exact exposure of German banks in Greece but that it was a “manageable” €10 billion – €20 billion. The Bundesbank previously gave an estimate of some €10 billion.

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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