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ANGELA MERKEL

Merkel predicts bailout ratification

German Chancellor Angela Merkel predicted Wednesday a eurozone bailout fund would be ratified this month despite rejection by Slovakia, and said all of Europe must help fight the crisis.

Published: 12 October 2011 16:10 CEST
Merkel predicts bailout ratification
Photo: DPA

But she warned that dealing with the continent’s debt crisis – which has sent shivers around the world – will be long and even painful.

“The world economy is heavily affected by the financial crisis and every EU country must contribute its share to the fight against the debt crisis,” Merkel said at a business forum in Ho Chi Minh City in southern Vietnam.

She did not refer to events in Slovakia but her comments came a day after that country’s lawmakers rejected a revamp of the European Financial Stability Facility (EFSF) rescue fund.

Sixteen other nations in the currency bloc approved the revamped EFSF but the bailout mechanism requires unanimous endorsement of all 17 members to take effect.

“The EFSF will be ratified at the October meeting,” Merkel said, in an apparent reference to the European Union’s much-awaited summit on October 23.

Only 55 of 124 Slovakian legislators present in the 150-member chamber voted in favour, while nine were against and 60 did not vote, effectively blocking the revamp of the eurozone’s €440 billion ($600 billion) bailout fund.

The vote also toppled the centre-right government of Prime Minister Iveta Radicova.

The opposition left Smer-SD said it was ready in a repeat ballot to vote in favour of the EFSF fund, in exchange for a snap election.

Eurozone leaders agreed in July to boost the EFSF’s powers in the hope of stemming fallout from the bloc’s deepening sovereign debt crisis which now threatens the euro project, the bloc’s banking system and the economy.

The changes are key for going ahead with a second bailout for Greece and the emergency recapitalisation of banks.

EFSF was set up after Greece was first bailed out to save it from default in May 2010. Slovakia abstained from the first Greek bailout.

“The euro has been and will always be a strong currency. Given the public debt issues at some of the European Union’s member countries, I don’t want the EU to become a debt union, but a strong union instead,” Merkel said.

Billionaire investor George Soros and about 100 former European dignitaries Wednesday published an open letter warning that the eurozone debt crisis could bring down the global financial system.

The group, calling themselves “concerned Europeans,” appealed to governments to establish an institution that can provide liquidity to the whole eurozone, a strengthening of financial market oversight and a revised EU growth strategy.

Merkel arrived in Vietnam for an official visit on Tuesday, after weekend talks where she and French President Nicolas Sarkozy held a pivotal meeting aimed at calming Europe’s economic storm.

Global markets responded with relief after the two leaders insisted they were united on the goal of stabilising the eurozone and Sarkozy promised “lasting, global and quick responses before the end of the month.”

He said Europe must arrive “united and with the problems resolved” at a November 3-4 meeting of the G20, the world’s advanced and emerging economies.

In Vietnam, Merkel urged major economies beyond the EU to cooperate in the fight against the debt troubles, but she said the G20 talks “can’t be a one-stop solution to the crisis.”

US President Barack Obama has called on Europeans to act fast.

AFP/mdm

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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.

Published: 30 May 2023 15:46 CEST
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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