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ECONOMY

Berlin firmly against debt ‘haircut’ for Greece

Germany is hoping eurozone finance ministers can clinch a deal on unlocking vital funds for Greece later on Monday but strongly rules out accepting losses on its Greek debt holdings, a spokesman said.

Berlin firmly against debt 'haircut' for Greece
Anti-austerity protester in Athens demands a 50 percent 'haircut' Photo: DPA

“We are going into this meeting with the hope that a solution can be found to all outstanding questions,” government spokesman Steffen Seibert told reporters at a regular news conference.

Later on Monday, eurozone ministers will attempt for the third time to clinch agreement on unfreezing a vital instalment of bailout aid worth about €31.2 billion as Greece stares again into the bankruptcy abyss.

But Seibert stressed again Berlin’s opposition to a so-called “haircut” on Greece’s debt – meaning that other eurozone governments and the European Central Bank would accept a write-down on the debt they currently hold.

“This official sector haircut is also not a topic for other countries in the eurozone. That’s why the finance ministers will not be talking about it. It’s also not a topic for the ECB,” insisted Seibert.

Greece’s private creditors have written off more than €100 billion in debt, and the IMF has urged the ECB, a public creditor, as well as other eurozone governments, to accept this solution.

With less than a year until elections, Germany is unwilling to take losses on its holdings of Greek debt and the ECB believes it is tantamount to monetary financing of a eurozone country – strictly forbidden by its founding treaty.

Seibert also pointed to legal complications.”It is true that there are significant political objections to such a haircut. But above all, there are clear legal objections and not just in Germany,” he said.

He noted that German budgetary law as well as EU laws stating that no country may bail out another stood in the way of a haircut.

Politically, he said that if Greece were granted a haircut, then other countries under an EU bailout programme might also want one.

AFP/jlb

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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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