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EUROPEAN UNION

Merkel ‘can’t imagine’ €750 billion EU recovery package delay

German Chancellor Angela Merkel on Thursday said she "couldn't imagine" delaying an agreement on a recovery plan worth €750 billion, given the urgency of lifting the European economy.

Merkel 'can't imagine' €750 billion EU recovery package delay
Merkel speaking in the Chancellory on Thursday: Photo: DPA

“We need to reach an agreement over the summer, I absolutely cannot imagine any other option,” said Merkel, whose country has just taken over the rotating EU presidency for six months.

The leaders of the 27 EU member states will meet in Brussels on July 17th, their first physical summit since the coronavirus lockdown began, to discuss the plan.

A group of countries, a so-called “Frugal Four”, are trying to rein in spending, which is earmarked mainly for the poorer countries of southern Europe hardest hit by the COVID-19 epidemic.

READ ALSO: Merkel's legacy at stake as Germany takes EU reins

The Netherlands, Austria, Denmark and Sweden insist that loans with tough conditions attached, rather than grants, should be the prefered method of rescue and are not in a rush to make a deal.

Other countries argue that the commission's plan misallocates the money,  giving too much to eastern Europeans who were never on the front lines of the pandemic.

“Every day counts” and “to succeed in this gigantic task, each member state  must look beyond its own small interests”, EU commission chief Ursula von der  Leyen said at a press conference with the German leader by video link.

'A big win'

Merkel has urged holdout nations to show unprecedented solidarity with hard-hit neighbours, warning that an uneven recovery could undermine the EU single market and end up harming stronger economies too.

But “member states' positions are still very far apart” on the matter, she admitted on Wednesday in a speech kicking off the EU-presidency.

If accepted, the rescue fund would be a milestone for EU unity.

It would also be a big win for Germany, and could ease some of the lingering resentment from the eurozone debt crisis a decade ago when Merkel's government insisted on harsh austerity for struggling nations like Greece.
 
The chancellor, who has just over a year left in her final term, has thrown her political weight behind the proposed €750 billion recovery fund.

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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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