Greek referendum plan shakes financial markets

Greek Prime Minister George Papandreou’s shock decision to hold a referendum on the EU's bailout deal has drawn angry reactions from Germany’s financial sector. The DAX stock index plunged by six percent in midday trading.

Greek referendum plan shakes financial markets
Photo: DPA

The plan, which could possibly end up turfing Greece out of the eurozone, alarmed investors and pushed the spread between Germany and France’s 10-year bond yields to its largest gap since the introduction of Europe’s single currency.

Michael Kemmer, head of Germany’s BdB banking association, said Tuesday that Papandreou’s scheme had caused “considerable uncertainty.”

“Uncertainty will probably last for weeks as a result and is anything but helpful in terms of stabilizing an already difficult situation,” he said.

“Important details following the euro summit will now be delayed or, in the worst case scenario, put on ice,” added Kemmer. “In addition, it is totally unclear what would happen if the Greek people reject the rescue packet.”

Papandreou called the planned referendum a “democratic and highly patriotic step,” but the banking sector was not so enthusiastic. Benjamin Schroeder, interest strategist at Germany‘s Commerzbank, warned that “the entire rescue package is now open to question again.”

Folker Hellmeyer, head analyst at Bremen’s Landesbank, described Greece’s decision as “suicide,” while Commerzbank expert Christoph Weil said Greece was risking bankruptcy.

Weil added that the patience of the international community “was slowly running out,” and that if Greece did not carry out the reforms demanded by the EU’s debt package, “the country would receive no more money.”

The euro’s value fell against other currencies midday Tuesday, when it was worth slightly less than $1.37, off three cents from Monday. Deutsche Bank’s shares fell 9.6 percent to €27.44, while Commerzbank’s shares fell 9.5 percent to €1.61.

AFP/DAPD/The Local/bk

Member comments

Log in here to leave a comment.
Become a Member to leave a comment.


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.