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ECONOMY

Germany rejects footing bigger Cyprus bailout

Germany on Friday said the amount of a eurozone bailout for Cyprus would not rise, after the debt-laden island state's president said he would appeal for extra assistance.

Germany rejects footing bigger Cyprus bailout
Photo: DPA

“The contribution from international creditors will not change,” government spokesman Steffen Seibert told a regular briefing, noting that the €10 billion ($13 billion) package was “already very large”.

Cypriot President Nicos Anastasiades said Friday he would appeal to EU chiefs for more help, a day after it emerged that the total cost of its EU-IMF bailout has surged to €23 billion from €17.5 billion previously.

That means Cyprus will now have to find €6.0 billion more than the €7.0 billion mooted in a preliminary agreement reached on March 25 in order to secure an EU-IMF contribution of €10 billion.

The news appeared to boost the teetering economy’s danger of collapse and further threatened big bank deposits.

Anastasiades said he had already spoken to European Union Economy and Euro Commissioner Olli Rehn ahead of a key meeting of eurozone finance ministers in Dublin later Friday that is due to finalise the bailout terms.

He said he would also write to European Commission chief Jose Manuel Barroso and to EU President Herman Van Rompuy but did not specify what additional support he was seeking.

A Cypriot source in Dublin said that Nicosia was not seeking “extra money” from its eurozone partners but was instead looking for help from a European Commission

task force to lessen the burden of measures agreed in exchange for loans.

Under the preliminary bailout terms agreed last month at talks where Germany played a key role, Cyprus committed to drastically downsizing its once lucrative banking sector, raising taxes, reducing the public sector workforce and privatising state-owned utilities.

AFP/mjl

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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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