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EUROPE

Merkel admits eurozone still searching for debt crisis solution

German Chancellor Angela Merkel admitted Wednesday that the eurozone had still not identified the road to recovery from its crippling debt crisis, after talks with Irish Prime Minister Enda Kenny.

Merkel admits eurozone still searching for debt crisis solution
Photo: DPA

At a press conference where she praised Ireland as a “superb example” of how to emerge from a debt emergency with the help of the EU, Merkel said the eurozone was still seeking the right medicine to heal the common currency.

“I believe we have still not given a sufficient answer to the question of the eurozone’s future,” Merkel told reporters, when asked about ongoing turmoil on the markets undermining the most vulnerable of the 17 nations using the euro.

She reiterated that she believed treaty changes, which would beef up the EU’s power to punish countries that flagrantly violate the rules on budgetary discipline, were the only way to restore confidence. This would include sanctions that could be mandated by the European Court of Justice.

Kenny indicated he would prefer to see the current mechanisms at the EU’s disposal exhausted before contemplating treaty changes in light of Ireland’s past trouble in getting reforms approved in a referendum.

“I don’t want to get into a position where you have a major competency change which could open the door for many countries to want treaty changes from their points of view which might lead to a very long situation,” he said. “We need to deal with this crisis with the facilities and the rules that we have now.”

Several countries including Britain, which unlike Germany and Ireland is not a member of the eurozone, have resisted efforts to see more central authority handed to Brussels.

Prime Minister David Cameron, who will hold talks with Merkel in Berlin Friday, lashed out this week against “grand plans and utopian visions” and called for an EU with “the flexibility of a network, not the rigidity of a bloc.”

In November 2010, Ireland was forced to seek an €85-billion ($119 billion) rescue package from the EU and the International Monetary Fund to deal with massive debt and deficit problems.

As it gradually recovers, Ireland has pledged to cut its public deficit to 8.6 percent in 2012 and to less than 3.0 percent, the EU ceiling, by 2015, through a stringent mix of spending cuts and tax hikes.

AFP/mry

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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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