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ANGELA MERKEL

Merkel to Cyprus: Keep reforms on track

German Chancellor Angela Merkel urged Cyprus on Friday to follow economic reforms, two days after saying the eurozone bailout candidate will not see any special terms as it seeks an aid package.

Merkel to Cyprus: Keep reforms on track
Photo: DPA

Merkel, who is attending an extraordinary summit of the centre-right European People’s Party in the port city of Limassol, also said the reportedly €17 billion bailout package will not be “decided now.”

“We are here today to study the situation of Cyprus and the situation in other European countries,” Merkel, speaking in German, told reporters before attending the summit.

“I will say to Cyprus that the task will be such that on one side it must follow reforms and on the other side there has to be solidarity from other European countries.”

Merkel did not clarify what reforms Cyprus must undertake, but the island has already pushed through tough austerity measures to meet the demands of eurozone creditors for more than one billion euros in cuts and savings.

Merkel also said that a package being hammered out in talks between Cyprus and the “troika” of the European Commission, the European Central Bank and the International Monetary Fund “are not at the stage to decide now.”

Her remarks echoed those made on Wednesday, when she said there would be no exceptional terms for Cyprus and that talks are likely to continue for some time.

“There are no special conditions for Cyprus… We have generally accepted rules in Europe and we are a long way from finishing the negotiations,” she said.

Meanwhile, Moody’s downgraded Cyprus’s government bond rating by three notches from B3 to Caa3 on Thursday, citing the anticipated increase in the government’s debt burden.

The downgrade to middle-range junk bond status was driven by the further increase in the amount of government support Cypriot banks are likely to require. Cyprus’s banks face rising delinquencies on loans to Greek and Cypriot customers.

Thursday’s downgrade is the latest by a major ratings agency of debt-plagued Cyprus.

AFP/bk

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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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