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ECONOMY

Bad bank pushed into red by Greek debt cut

The "bad bank" of German state-owned lender Hypo Real Estate said Tuesday that writedowns on its holdings of Greek bonds pushed it deeply into the red in the first six months of this year.

Published: 19 October 2011 09:15 CEST
Bad bank pushed into red by Greek debt cut
Photo: DPA

FMS Wertmanagement, which is in charge of the porftolio of toxic assets from Hypo Real Estate, said in a statement it booked a net loss of €690 million ($944 million) in the six months to June after taking a charge of €808 million on its holdings of Greek bonds.

“Not considering the writedowns on the Greece portfolio, FMS Wertmanagement would have generated positive income of €118 million from ordinary business activities in the first half of 2011,” said chief risk officer, Christian Bluhm.

“We are pleased with the positive development, but we were unable to escape the effects of the international sovereign debt crisis, which intensified dramatically in the first six months – especially the problems in Greece,” Bluhm said.

The bad bank’s losses are underwritten by the German state, but the €3.9 billion pumped into it last year have practically already been used up, since FMS Wertmanagement booked a loss of €3.0 billion last year.

Thus, if further losses are incurred in the coming months, the state will have to put up more money.

As of June 30, FMS Wertmanagement held Greek government bonds with a nominal value of €7.2 billion, plus a further €1.6 billion in loans and bonds of Greek issuers.

German Chancellor Angela Merkel said Tuesday this weekend’s EU summit was an important step but that more would be needed to stem the long-term debt crisis threatening the global economy.

The summit in Brussels will aim to overcome the eurozone sovereign debt crisis, she told reporters in Berlin. But “this debt has been accumulated over years and that is why this cannot be resolved during one summit,” she said.

“Next Sunday’s EU summit will mark an important step. But more steps will then follow as the aim is to overcome a debt crisis of states” that has built up over decades, she told a news conference.

Such a crisis “cannot be ended with just one summit,” but will require “hard work over the long term,” she said.

On Sunday “we shall take important and adequate decisions which will be followed by other decisions” in the future, she added.

AFP/bk

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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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