Europe's news in English

COPY LINK

ECONOMY

Merkel demands better global financial regulation

German Chancellor Angela Merkel on Wednesday called for tighter regulatory control on the international financial system following the recent turmoil on Wall Street.

Published: 17 September 2008 11:55 CEST

Merkel demands better global financial regulation

Photo: DPA

“We are in desperate need of an improved regulatory framework,” Merkel said in a speech to parliament, saying only moderate progress had been made since Germany pressed for greater transparency as head of the G8 in 2007. “We cannot stand by and do nothing. Politicians must act,” she said.

She said that the much-criticized rating agencies that assess companies’ financial health should be subject to a code of conduct. Merkel also added her voice to those seeking to calm the public, saying that the effect on the German economy from the current crisis looked set to be “moderate,” but would not leave the country “completely unscathed.”

“The federal government is watching developments with the utmost attention,” she said.

But German state development bank KfW admitted on Wednesday it had mistakenly transferred €300 million ($427 million) to US investment bank Lehman Brothers just prior to its collapse.

“We are working to shed light very quickly on this technical fault,” Finance Ministry spokesman Torsten Albig said. The tranfser happened on Monday as the US investment bank was filing for bankruptcy protection.

A KfW spokesman told the Frankfurter Allgemeine Zeitung newspaper that there had been “an erroneous swap payment on Monday … the reasons for which are being examined internally.”

How is Denmark's economy handling inflation and rate rises?

The council, led by four university economics professors commonly referred to as “the wise men” or vismænd in Denmark, gave a much rosier picture of Denmark’s economy in its spring report, published on Tuesday, than it did in its autumn report last year.

“We, like many others, are surprised by how employment continues to rise despite inflation and higher interest rates,” the chair or ‘chief wise man’, Carl-Johan Dalgaard, said in a press release.

“A significant drop in energy prices and a very positive development in exports mean that things have gone better than feared, and as it looks now, the slowdown will therefore be more subdued than we estimated in the autumn.”

In the English summary of its report, the council noted that in the autumn, market expectations were that energy prices would remain at a high level, with “a real concern for energy supply shortages in the winter of 2022/23”.

That the slowdown has been more subdued, it continued was largely due to a significant drop in energy prices compared to the levels seen in late summer 2022, and compared to the market expectations for 2023.

The council now expects Denmark’s GDP growth to slow to 1 percent in 2023 rather than for the economy to shrink by 0.2 percent, as it predicted in the autumn.

In 2024, it expects the growth rate to remain the same as in 2003, with another year of 1 percent GDP growth. In its autumn report it expected weaker growth of 0.6 percent in 2024.

What is the outlook for employment?

In the autumn, the expert group estimated that employment in Denmark would decrease by 100,000 people towards the end of the 2023, with employment in 2024 about 1 percent below the estimated structural level.

Now, instead, it expects employment will fall by just 50,000 people by 2025.

What does the expert group’s outlook mean for interest rates and government spending?

Denmark’s finance minister Nikolai Wammen came in for some gentle criticism, with the experts judging that “the 2023 Finance Act, which was adopted in May, should have been tighter”. The current government’s fiscal policy, it concludes “has not contributed to countering domestic inflationary pressures”.

The experts expect inflation to stay above 2 percent in 2023 and 2024 and not to fall below 2 percent until 2025.

If the government decides to follow the council’s advice, the budget in 2024 will have to be at least as tight, if not tighter than that of 2023.

“Fiscal policy in 2024 should not contribute to increasing demand pressure, rather the opposite,” they write.

The council also questioned the evidence justifying abolishing the Great Prayer Day holiday, which Denmark’s government has claimed will permanently increase the labour supply by 8,500 full time workers.

“The council assumes that the abolition of Great Prayer Day will have a short-term positive effect on the labour supply, while there is no evidence of a long-term effect.”

Url copied to clipboard!