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ANGELA MERKEL

Berlin denies it’s considering ‘elite bonds’

Germany denied on Monday a report it was considering "elite bonds" to pool the debt only of eurozone countries with a top AAA credit rating as a response to its crippling debt crisis.

Berlin denies it's considering 'elite bonds'
Photo: DPA

“There is no plan for ‘Triple A bonds’ or ‘elite bonds’ as stated in the article,” a finance ministry spokesman said in a statement following a report earlier Monday in the daily Die Welt.

“We are working intensively on a stability union,” the spokesman added, referring to Berlin’s drive for EU member countries to sign on to tougher fiscal discipline.

The conservative daily had reported that Berlin was looking at a scheme of issuing joint bonds from the six countries with the highest credit rating –

Germany, France, Finland, the Netherlands, Luxembourg and Austria.

These bonds would be aimed at erecting a “credible firewall to calm financial markets” and, under strict conditions, could be used to come to the aid of debt mired major economies such as Italy and Spain, Die Welt said.

They would have an interest rate of between 2.0 and 2.5 percent and the revenues generated could be made available to the eurozone bail-out fund, the report said.

But the finance ministry said they wanted to achieve their goal of a stability union “by means of treaty changes in which we suggest that member states’ budgets respect firm debt limits.”

“This is the way to win back the confidence of the markets and send the right signal to the financial investors of the world that the euro is and remains a stable currency, in which it pays to invest,” the statement said.

Berlin also remains opposed to a wider scheme formally advanced by the European Commission last week, for “eurobonds” covering the entire eurozone.

And Germany is also against allowing the European Central Bank more room for manoeuvre in its controversial programme of buying the bonds of debt-wracked countries.

However, a report on Sunday in the Welt am Sonntag weekly suggested that treaty changes tightening up fiscal policy in the 17-nation zone could give the ECB more freedom to intervene on the bond markets.

The hope is that the ECB could bring more firepower to bear on the bond markets and bring down the yield, or interest rate, that countries have to pay on their debts.

But Berlin is concerned that allowing the ECB to print money for this purpose would lead to inflation.

According to its founding treaty, the ECB’s sole function is to keep inflation at a level “close to but below” two percent.

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.

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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