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ECONOMY

Westerwelle: Cyprus must reform for bailout

German Foreign Minister Guido Westerwelle said on Friday that Europe is "ready to help" Cyprus tackle its debt troubles - but only if the country commits to key structural reforms and an austerity budget.

Westerwelle: Cyprus must reform for bailout
Photo: DPA

Westerwelle told public broadcaster ARD that there are mechanisms in place to support Cyprus, but said the country must be “really serious” about reforms to receive that aid.

“On that front, certainly, many further steps are still needed,” he said.

The foreign minister’s comments come just hours after US ratings agency Standard & Poor’s slashed Cyprus’s credit rating by two notches, to CCC+.

In June, the country formally requested bailout funding from its eurozone partners, with Finance Minister Vassos Shiarly estimating that Nicosia would need about €17.5 billion to stay afloat.

Meanwhile, there are growing fears that the country will be unable to shoulder its debts even after adopting the necessary reforms. The International Monetary Fund is said to be pushing for a write-down of Cypriot debt holdings, according to a report published Thursday in the Süddeutsche Zeitung.

The IMF wants this “haircut” in exchange for its share of bailout money for Cyprus, the paper wrote.

Shiarly has denied talk of a debt write-down, however – and ECB executive board member Jörg Asmussen, a senior German economist, also dampened speculation, saying it is still unclear how much money Cyprus will actually need.

“We won’t have the final numbers until mid-January,” Asmussen told ARD. He also warned that more measures to help Cyprus may be needed if the country’s debt burden proves to be unsustainable.

DAPD/DPA/The Local/arp

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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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