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MONEY

German consumer mood slumps further as inflation bites

German consumer confidence remains on a record downward slide as Europe's largest economy faces soaring inflation and an energy crisis heading into winter, a key survey published Wednesday showed.

A person carries shopping bags in Hanover.
A person carries shopping bags in Hanover. Photo: picture alliance/dpa | Julian Stratenschulte

Pollster GfK’s forward-looking barometer fell to minus 42.5 points for October, hitting a record low for the fourth month in a row, following a revised September reading of minus 36.8 points.

“The currently very high inflation rates of almost eight percent are leading to large real income losses among consumers and thus to a significant reduction in purchasing power,” said GfK consumer expert Rolf Buerkl.

“Many households are currently being forced to spend significantly more on energy,” he added.

The leaders of Germany’s 16 states will meet on Wednesday to discuss additional relief measures to help tackle the energy crisis – but without Chancellor Olaf Scholz, who tested positive for Covid-19 earlier this week.

READ ALSO: German state leaders call for more support to help people with rising energy bills 

Inflation in Germany reached 7.9 percent in August, driven by soaring energy costs, with the pace expected to increase further by the end of the
year.

“Consumer morale will only recover noticeably and sustainably if inflation is reduced,” GfK said.

The dismal prediction for October was driven by a record low in income expectations for September.

Germany is expected to go into recession next year, according to the OECD, with Europe’s biggest economy shrinking by 0.7 percent.

Germany has seen a drastic reduction in supplies of Russian gas since the invasion of Ukraine, causing an explosion in prices for the fuel.

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MONEY

Germany reaches agreement on Bürgergeld – with a couple of catches

Members of Germany’s traffic light coalition government and the opposition Christian Democratic Union party have reached an agreement in the dispute over plans for a new citizens‘ income. There will be tougher sanctions against benefit recipients and fewer discretionary assets.

Germany reaches agreement on Bürgergeld - with a couple of catches

Last week, the German government’s plans to reform unemployment benefits with its new “Bürgergeld”, or citizens’ income, proposals were blocked in the Bundesrat.

The legislation was held up mostly by members of the Christian Democratic Union (CDU/CSU) which had been strongly opposed to the proposals for a six-month Vertrauenszeit (trust period) in which benefits claimants would not incur sanctions, as well as to the amount of assets recipients would be able to hold on to.

READ ALSO: EXPLAINED: Will Germany’s controversial Bürgergeld still come into force?

On Tuesday, politicians from the traffic light coalition parties and the CDU/CSU reached a compromise on the proposed reforms which means that some of the key measures will be scrapped.

No trust period

The CDU/CSU was able to push through its demand for more sanctions for recipients and the six-month trust period will now be scrapped completely.

Instead, it will be possible to enforce benefit sanctions from the first day of an unemployment benefits claim if recipients don’t apply for a job, or fail to turn up for appointments at the job centre, for example.

The CDU and CSU also demanded that unemployment benefits recipients be allowed to keep less of their own assets when they receive state benefits. The original plan had been for assets worth up to €60,000 to be protected for the first two years, but the compromise reached has knocked this down to €40,000 for one year – during which time benefits recipients will not have to use up their savings.

Following the announcement of the agreement, Green Party later Britta Haßelmann said “I regret it very much”. According to Haßelmann, the trust period was the core of the reform designed to stop people from having to take up “just any job”.

READ ALSO: Bürgergeld: What to know about Germany’s unemployment benefits shake-up

Other traffic light colleagues were more optimistic, however. Katja Mast from the SDP spoke of a “workable compromise in the spirit of the matter,” while FDP Parliamentary Secretary Johannes Vogel said that it had succeeded in “making a good law even better”.

CDU/CSU leader Friedrich Merz, meanwhile, sees the compromise as a great success for his party, though he also praised the willingness of the parties in the government to reach an agreement.

“The coalition was very quick and – to my surprise – very largely willing to make compromises here,” Merz said. 

What happens next?

Tomorrow, the Mediation Committee of the Bundestag and Bundesrat will meet to discuss the proposals. If the agreement is confirmed, the welfare reform could clear the final hurdle when it is voted on Bundesrat again at the end of the week. According to the federal government’s plans, if it’s approved, Bürgergeld will come into force in January and replace the current Hartz IV system. 

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