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ANGELA MERKEL

German banks take US rating agency hits

Deutsche Bank and Postbank were among a number of global banks downgraded by the American credit ratings agency Moody's over the last couple of days amid fears of how the eurozone crisis could affect them.

German banks take US rating agency hits
Photo: DPA

Moody’s announced it was downgrading Postbank from the top A1 rating to A2 on Friday. The decision follows a similar move on Thursday when Deutsche Bank was downgraded two places from AA3 to A2.

Given the current financial turbulence, pressure is increasing on Germany to release funds from the European rescue funds to help the ailing banking sector across Europe, Der Spiegel magazine reported on Thursday.

At this week’s meeting of the eurozone group, head of the International Monetary Fund Christine Lagarde demanded that money be released directly to European banks without going first via EU member state governments, something the German government has opposed so far, the magazine said.

German Chancellor Angela Merkel on Friday reiterated her opposition to allowing Europe’s crisis funds to recapitalise debt-stricken banks directly, stressing that EU treaties did not allow this.

“It’s not that I do not want to [help] but the treaties are set up in such a way that the governments are the partners,” she said, adding that it was not her decision to make.

“If I simply gave money to a Spanish bank, or other bank, I can’t say what that bank should change, because I’m not responsible. I’m the German Chancellor, I can only say that to my banks.”

AFP/The Local/jlb

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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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