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ECONOMY

Italian PM: Germany to blame for EU debt

The Italian Prime Minister has blamed Germany for Europe's debt woes which, he told reporters on Wednesday, lie in irresponsible parenting from stronger member countries during the eurozone’s infancy.

Italian PM: Germany to blame for EU debt
Photo: DPA

On a visit to Tokyo, President Mario Monti announced that because the eurozone’s two largest players –Germany and France – had not abided by fiscal rules, they had set a bad example for the rest of the continent.

“The story goes back to 2003 (and) the still almost infant life of the euro, when Germany and France that were too flexible concerning public deficits and debts,” Monti said.

“Of course if the father and mother of the eurozone are violating the rules, you could not expect (countries such as) Greece to be compliant,” he added.

The technocrat, who replaced billionaire media magnate Silvio Berlusconi in November as head of the EU’s third largest economy, said that flouting rules that allowed for an annual budget deficit of no more than three percent of GDP was the issue.

He said despite recommendations from a meeting of ministers from European Union governments, France and Germany had escaped without punishment for going beyond the deficit limit.

The eurozone is now under pressure to increase its debt rescue fund, as the Organisation for Economic Co-operation and Development (OECD) announced on Tuesday that a financial safety net of at least €1.0 trillion was needed.

Eurozone finance ministers are meeting on Friday and Saturday in Copenhagen to decide whether to increase the EU safety net or not.

The OECD said the refinancing needs of vulnerable eurozone nations could top €1.0 trillion over the coming two years, on top of cash needed to recapitalise banks.

Italy alone needs some €750 billion to finance its debt, while Spain requires around €370 billion over the next three years.

AFP/jcw

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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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