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EUROPE

Merkel expects no breakthrough at eurozone crisis summit

German Chancellor Angela Merkel said on Tuesday that the eurozone summit on a second Greek rescue would not produce a "spectacular" knock-out blow to the bloc's sovereign debt crisis.

Merkel expects no breakthrough at eurozone crisis summit
Photo: DPA

“After more than a year of discussing Greece there is currently a great yearning for one finalising, single big step, something ideally that is spectacular,” Merkel said after talks with Russian President Dmitry Medvedev.

“The words being used are clear – a large debt restructuring, eurobonds, a transfer union, and lots more. This creates the impression that everything is going to be okay afterwards, that the issue of Greece and the issue of the euro can be put to one side.”

This way of thinking, she said, was “negligent” or reflected a “lack of patience, or both,” Merkel told a news conference in Hannover, northern Germany, two days ahead of a eurozone summit in Brussels.

“If you are going to be politically responsible, and this is what the (German) government wants and takes seriously, you know that such a spectacular, single step cannot responsibly be made, including on Thursday.

“Instead, we need a controlled and manageable process of successive steps and measures, a process that has one single purpose, one paramount aim, namely finally getting to the root of this problem. “This means reducing debt and improving competitiveness.”

She added: “Thursday will help in this, but further steps will be needed, not one spectacular event solving all problems.”

Greece, Ireland and Portugal have needed bailouts from the European Union (EU) and International Monetary Fund (IMF) and markets speculate that Spain and Italy could suffer the same fate.

Germany has ruffled feathers with demands for private bondholders to participate in the second Greek rescue, but there are concerns that any debt restructuring could lead credit ratings agencies to declare Athens in default.

Jean-Claude Trichet, European Central Bank president, repeated a warning on Monday that any default would mean that Greek banks could no longer offer the country’s bonds as collateral for vital cash lifelines from the ECB.

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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