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Merkel admits eurozone still searching for debt crisis solution

German Chancellor Angela Merkel admitted Wednesday that the eurozone had still not identified the road to recovery from its crippling debt crisis, after talks with Irish Prime Minister Enda Kenny.

Merkel admits eurozone still searching for debt crisis solution
Photo: DPA

At a press conference where she praised Ireland as a “superb example” of how to emerge from a debt emergency with the help of the EU, Merkel said the eurozone was still seeking the right medicine to heal the common currency.

“I believe we have still not given a sufficient answer to the question of the eurozone’s future,” Merkel told reporters, when asked about ongoing turmoil on the markets undermining the most vulnerable of the 17 nations using the euro.

She reiterated that she believed treaty changes, which would beef up the EU’s power to punish countries that flagrantly violate the rules on budgetary discipline, were the only way to restore confidence. This would include sanctions that could be mandated by the European Court of Justice.

Kenny indicated he would prefer to see the current mechanisms at the EU’s disposal exhausted before contemplating treaty changes in light of Ireland’s past trouble in getting reforms approved in a referendum.

“I don’t want to get into a position where you have a major competency change which could open the door for many countries to want treaty changes from their points of view which might lead to a very long situation,” he said. “We need to deal with this crisis with the facilities and the rules that we have now.”

Several countries including Britain, which unlike Germany and Ireland is not a member of the eurozone, have resisted efforts to see more central authority handed to Brussels.

Prime Minister David Cameron, who will hold talks with Merkel in Berlin Friday, lashed out this week against “grand plans and utopian visions” and called for an EU with “the flexibility of a network, not the rigidity of a bloc.”

In November 2010, Ireland was forced to seek an €85-billion ($119 billion) rescue package from the EU and the International Monetary Fund to deal with massive debt and deficit problems.

As it gradually recovers, Ireland has pledged to cut its public deficit to 8.6 percent in 2012 and to less than 3.0 percent, the EU ceiling, by 2015, through a stringent mix of spending cuts and tax hikes.

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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