Europe's news in English

COPY LINK

ECONOMY

Berlin sees ‘no need’ to boost EU firewall fund

Germany reiterated on Wednesday there was no need to pour more money into the eurozone's crisis-fighting war chest, a week ahead of a crunch EU summit likely to be dominated by the issue.

Published: 22 February 2012 14:19 CET

Berlin sees 'no need' to boost EU firewall fund

Photo: DPA

Chancellor Angela Merkel’s spokesman told reporters in Berlin: “The position of the federal government has not changed. There is no need” to raise the volume of the European Stability Mechanism (ESM).

“We have agreed with our partners that we would look at the volume in March,” stressed the spokesman, Steffen Seibert.

Several top officials, including the head of the International Monetary Fund, Christine Lagarde, have called for the eurozone to boost the capacity of the ESM, currently set at a maximum of €500 billion ($661 billion).

One way leaders are considering doing this is by adding cash left over in the €440-billion European Financial Stability Facility (EFSF) that was due to be phased out in favour of the ESM in the summer of 2013.

However, Seibert noted that Italy and Spain are now able to borrow at much lower rates on the bond markets. Analysts were concerned that soaring bond yields in those major economies could prompt contagion throughout the eurozone.

“In this respect, we have a different priority as far as the ESM is concerned. We believe that we need to decide very soon in what form and in how many tranches we pay in capital to the ESM,” he said.

Germany was prepared to send a “strong signal” in this respect, he added.

Eurozone leaders will hold a special meeting on March 2 to discuss the currency’s debt firewall and elect a new eurozone boss, with EU president Herman Van Rompuy favoured to win the job.

Berlin has already indicated it might be ready to pay in its share of the €80 billion in hard cash in one lump sum, rather than in several tranches.

AFP/mry

Member comments

Log in here to leave a comment.

Become a Member to leave a comment.

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.”

Url copied to clipboard!