Merkel: Germany ‘strong’ enough to cope with financial crisis

German Chancellor Angela Merkel said on Tuesday that the long-term consequences of the global financial crisis were uncertain but that she was confident the "strong" German economy would survive.

Merkel: Germany 'strong' enough to cope with financial crisis
Photo: DPA

In a keenly awaited speech to parliament, Merkel also singled out the United States for blame in the crisis and criticized European Union partner Ireland for its “unacceptable” unilateral move to protect Irish banks.

“The long-term consequences of the financial crisis are today impossible to foresee, as are the effects on our growth and our country,” Merkel said. “But I say too, also in this difficult hour, that Germany is strong … and I am firmly convinced that this will help us to cope with the consequences of the financial crisis, even if it will not be easy,” she told lawmakers.

She said that her government – an uneasy coalition of her conservative Christian Democrats with the centre-left Social Democrats – would stick to its reform policies despite the crisis, including its aim to balance the federal budget by 2011.

The speech came two days after Merkel said that all savings and current accounts in German banks would be guaranteed as the government cobbled together a €50-billion ($68-billion) rescue of the country’s fourth biggest bank, Hypo Real Estate (HRE).

HRE was the latest financial group to be rescued in Europe since the year-old credit crunch became a full-blown global crisis last month with the collapse of Wall Street titan Lehman Brothers. But Merkel hit out at a similar guarantee issued last week by the Irish government that would cover all on personal and corporate bank deposits at its six major banks.

“The Irish way is not the right way,” Merkel said. “Protecting without coordination one’s own banks, without including other international institutions that paid taxes in Ireland for years, and thereby of course hurting competition, is in my opinion unacceptable.”

The comments came as European finance ministers agreed in Luxembourg on Tuesday to increase such minimum bank deposit guarantees in Europe to €50,000 ($67,500) from €20,000 currently.

Merkel, in power since 2005, also hit out at what she called the “irresponsible” granting of mortgages to people in the United States with shaky credit histories. “The risks from these loans were sold on, newly packaged, strewn around worldwide and so became the seed of the worldwide financial crisis,” she said.

Merkel also reiterated her opposition to a US-style bailout fund contributed to by all 27 European Union states, as discussed at a meeting with the leaders of France, Italy and Britain at a summit in Paris at the weekend.

“In Germany’s point of view what is not … acceptable is that all 27 member states create a shield and all pay into a fund and then with 27 states to perform the necessary crisis management in member states,” Merkel said. “I do not believe that this is compatible with fast decision-making and therefore we reject this.”

She said that each country should foot the cost of bailouts of its banks but that there should be coordination between EU countries on the financial crisis.

HRE said on Tuesday that its chief executive Georg Funke has resigned. The bank’s management had come under fierce attack from top officials for initially not giving an accurate picture of its finances. Funke is being replaced by Axel Wieandt, who is joining from Deutsche Bank.

Merkel called on firms to punish similar management slip-ups more harshly, saying that mechanisms already existed for doing so but they were not applied enough, “in order to make managers live up to their responsibilities.”

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Swedish finance minister: voters may have to accept falling real wages

Sweden's finance minister had told The Local that this year's election will largely be about rising costs, but that his party is not planning to intervene to prop up real incomes and so worsen inflation.

Swedish finance minister: voters may have to accept falling real wages

Speaking at a seminar on Sweden’s economic situation hosted by Swedbank, Mikael Damberg agreed that the coming campaign would be a so-called plånboksval, or “pocketbook election”, where rising costs and falling spending power are the dominant issue, but he said he thought this would benefit rather than harm the Social Democrats. 

“Economic issues will be very important,” he told The Local, “and I think people will think about who will be best in charge of the public finances, and who has been in government and handled tough situations, and I think that Magdalena Andersson, as the Prime Minister with seven years as Minister of Finance, is the right woman to lead Sweden in these difficult times.”

His worry, he said, was that Sweden’s political parties would respond to inflation levels of close to eight percent by promising voters subsidies and cash transfers to make up for rising prices, which if implemented would then risk fuelling an inflationary spiral. 

“It might be |a problem] if the parties draw the wrong conclusion, and think that they can spend a lot of money right now. Because if they spend too much money, too broadly, not focusing on vulnerable groups, then inflation will go up, and interest rates will go even higher. And that would actually worsen the situation in the wallet for ordinary people.” 

Instead, Damberg said that people living in Sweden would ideally simply tighten their belts and tolerate a period of falling real incomes. 

“For 25 years in Sweden, we have had real wage increases for ordinary workers, and that’s kind of unique on an international perspective. So this year, there will be a drop in real wages because of inflation,” he said.

He said that he hoped that in next year’s negotiations between unions and employers over new collective bargaining agreements, unions were as responsible as they have been historically, and avoided calling for inflationary pay hikes. 

“It’s tough. The war has made us all less rich, and some groups will be affected very much. But I think, there’s no point in getting wage increases if it pushes inflation higher. The trick here is to get wage increase that are for real, and not just on paper.” 

In the seminar, he said that there was a danger that the huge emergency spending packages Sweden, like other countries, had put in place to soften the impact of the Covid-19 pandemic would set a precedent, leading voters and politicians to think it was possible for governments to spend their way out of the coming economic difficulties in a similar way. 

His intention, he said, if he was reappointed finance minister after the election, would be to keep the tax rate roughly level with where it is now, neither raising nor lowering taxes, in the hope that Sweden’s state finances go into a small surplus next year. 

He said it had been right this year to pass measures to increase the incomes of the poorest families and the poorest pensioners, and that his party would still seek to give aid targeted those least able to cope with rising prices. 

“Politics has a role,” he said. “But you need to be careful not to create too big a role, because if you think that politics can do everything, then we will start fuelling inflation. It’s a lot harder now than it was in the pandemic.” 

Shortly before the seminar, Ulf Kristersson, leader of the opposition Moderate Party, made a speech in which he accused the government of bringing in 46 new taxes over the last four years, and together in a “left-wing cartel” with other parties of planning a series of tax hikes, including a property tax, a tax on savings, a wealth tax, a tax on the highest incomes, and a reduced tax break on cleaners and other households services.

“I think they’re a bit desperate, because they’re not doing that well in the polls,” Damberg said. “So one way [of improving the situation] is to try to frighten voters. But I think our record speaks for itself, and I think Magdalena Andersson has got a lot of credibility when it comes to handling Swedish economy.” 

“She has not introduced a property tax, and she has not in the last period in government increased the tax burden on ordinary people. If you look at the tax burden in Sweden over the last period, it’s gone down, not up.”