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ECONOMY

ECB ‘could oppose Germany and buy bonds’

A highly anticipated meeting of the European Central bank ended in disappointment on Thursday, with ECB head Mario Draghi failing to announce any concrete measures to stop the Eurzozone crisis.

ECB 'could oppose Germany and buy bonds'
Mario Draghi didn't say what many had hoped for on Thursday. Photo: DPA

Draghi said the ECB would gear up to buy Italian and Spanish bonds on the open market – but would only act after eurozone governments activate bailout funds to do the same.

So far Germany has remained mum on Draghi’s “possible bond-buying” statement – an option it has vehemently objected to in the past.

Draghi said all 23 members of the Governing Council endorsed Thursday’s statement with one exception – a reference to Bundesbank president Jens Weidmann.

“It’s clear and it’s known that (Germany’s) Bundesbank have their reservations about the programme of buying bonds. The idea is we now have the guidance, the monetary policy committee, the risk committee and the markets committee will work on this guidance and then (we) will take a final decision and the votes will be counted.”

Draghi’s wording implied he may be prepared to outvote the Germany if necessary.

The markets were unimpressed by Draghi’s announcement, having anticipated a more concrete measure. He had raised expectations to fever pitch with a vow last week to do “whatever it takes” to preserve the embattled single currency.

In addition to his promise to intervene possibly on the bond markets, Draghi stepped up his verbal rhetoric, warning traders that speculating against the euro was a lost cause.

Reiterating that the euro was “irreversible”, he said: “It’s pointless to bet against the euro.”

But he failed to back up his talk with action, analysts complained.

“The ECB did not change its monetary policy nor did it provide us with details about possible future actions,” complained Alexandra Estiot, analyst at BNP Paribas.

“Stress on sovereign debt markets has to be addressed and the ECB could help. But once more, the ECB threw the ball back in the politicians’ court,” she said.

The euro fell to $1.22, after briefly topping $1.24, its highest rate since June 5.

Earlier in the day, the ECB said it would keep interest rates unchanged at 0.75 percent.

The Local/afp/sh

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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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