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ECONOMY

Opel teeters on the brink

German carmaker Opel is reportedly threatening to close three of its plants in Europe and sack 11,000 people as it teeters on the brink of bankruptcy.

Opel teeters on the brink
Photo: DPA

According to the weekly Der Spiegel on Saturday, a plan submitted to government officials last week calls for the closure of factories at Bochum in western Germany, Eisenach in the east and Antwerp in northern Belgium.

The aim is to save some $1.2 billion (€949 million) in staff costs, Der Spiegel said. An alternative proposal would be to cut only 3,500 jobs but lower wages across the board, it added.

General Motors and its German subsidiary Opel are also reportedly readying themselves for bankruptcy, Die Welt reported. The newspaper said the companies have hired high-powered insolvency lawyers in case the German government doesn’t come to the rescue.

Opel has also raised the amount of loan guarantees it wants from the government to €4 billion, the weekly news magazine Focus reported. The company had originally asked for €3.3 billion worth of guarantees to help it restructure and survive Germany’s worst recession since World War II.

The companies have hired three law firms, including the Heidelberg insolvency specialist firm Wellensiek, to provide “pre-bankruptcy” advice, Die Welt reported.

The move comes as talks with the German government for loan guarantees to help the storied German brand appear to have stalled over government displeasure with the restructuring plan Opel put forward. The 217-page plan reportedly lacks specifics and instead includes glossy car advertisement photos and sales slogans.

“The Opel leadership has recognised that their restructuring plan can be nothing more than a first proposal,” Dagmar Wöhrl, the State Secretary of the Economy Ministry told Die Welt. The newspaper reported that at least 10 to 12 major questions remain open before the government can come to a decision about whether to rescue the company.

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ECONOMY

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

Denmark's economy is now expected to avoid a recession in the coming years, with fewer people losing their jobs than expected, despite high levels of inflation and rising interest rates, The Danish Economic Council has said in a new report.

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.” 

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