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Germany cool to France’s EU economy plan

Germany said Friday that French President Francois Hollande's proposal for a eurozone economic government was "interesting" but reacted coolly to his call for strengthened European budgetary powers.

Germany cool to France's EU economy plan
Photo: DPA

“Such a right to a budget could result in the mutualisation of debt. You know the position of the government on that, that such a mutualisation of debt is out of the question,” a German Economy Ministry spokesman said.

Additionally the powers of Germany’s Bundestag lower house of parliament would be affected by the budget proposal, he told a regular government news conference, warning that “caution” was needed.

Several eurozone powers including France and the European Commission have called in the past for the 17 member-bloc to pool its debts in response to the debt crisis that has buffeted the currency zone.

But powerhouse Germany has been against it as an immediate crisis-fighting tool, fearing weaker eurozone members would get a free ride at its expense.

A year into his presidency, Hollande vowed Thursday to push for a new eurozone government as he struggles to overcome France’s economic woes amid rising unemployment and recession.

He proposed a four-pronged approach for overhauling Europe, including the creation of an “economic government” that would have a president, meet every month and be equipped with a budget.

Chancellor Angela Merkel’s spokesman Steffen Seibert called Hollande’s broad proposal “interesting and worthy of consideration” and said Merkel and Hollande had discussed it “quite some time ago”.

But he told the same briefing: “For us it’s important that we first work on the more immediate steps. That means that we agree on what the conditions are for better competitiveness.”

The next opportunity for that discussion would be at a June EU summit, he said.

He also denied a pre-released report Friday by the Spiegel news weekly that Germany and France would not present a common statement on the euro crisis before the June summit, as planned, because of differences.

“Such a decision has not been made,” Seibert told reporters, adding that Berlin was working with Paris “closely and in mutual trust” on the EU and eurozone’s further development.

Merkel told a panel on Europe in Berlin Thursday that she had a “good” relationship with Hollande but that did not mean they did not sometimes have differences on an issue.

Friction has arisen between the neighbours recently as Berlin stresses the need for belt-tightening to make growth sustainable while Paris believes higher public spending can kick-start struggling eurozone economies.

AFP/mry

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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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