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EUROPE

Merkel aiming to reschedule euro debt fund payments

Chancellor Angela Merkel will argue at a key European summit Thursday for Germany's payments into a euro bailout fund to be rescheduled, a government source said, amid domestic criticism over Berlin's contribution.

Merkel aiming to reschedule euro debt fund payments
Photo: DPA

On Monday, finance ministers from the 17 countries that share the euro struck a deal to set up a €700-billion ($990-billion) permanent fund from 2013, replacing an existing smaller pot for debt-laden economies.

Of this €700 billion, €80 billion would come in the form of cash payments, with the rest being loan guarantees. As Europe’s biggest economy, Germany was set to contribute €22 billion in cash to this fund.

Originally, Germany was to provide half of its portion in 2013 and the rest in three installments over three years.

But Merkel has suggested offering five chunks of €4.4 billion over five years, reducing the pressure on the budget in 2013, the year of the next federal election, said a government official who asked not to be named.

EU leaders are poised to agree the exact details at a two-day summit in Brussels starting Thursday.

Christian Lindner, general secretary of the pro-business Free Democrats (FDP), junior partners in Merkel’s coalition government, said that the “last word” had not been spoken on Germany’s contribution to the bailout fund.

“For the FDP, it seems to weigh too heavily on the German budget,” Lindner told mass circulation daily Bild.

AFP/mry

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ECONOMY

Swedish economy to grind to a halt as interest rates kick in

Sweden faces an economic slump next year that will see economic growth grind to a complete stop, Sweden's official government economics forecaster, has warned.

Swedish economy to grind to a halt as interest rates kick in

Sweden’s National Institute of Economic Research, which is tasked with tracking the business cycle for the Swedish government, warned in its quarterly forecast on Wednesday that greater than expected energy prices, interest rate rises, and stubborn inflation rates, Sweden was facing a significant downturn. 

The institute has shaved 1.6 percentage points off its forecast for growth in 2023, leaving the economy at a standstill, contracting -0.1 percent over the year. 

The institute now expects unemployment of 7.7 percent in 2023, up from a forecast of 7.5 percent given when in its last forecast in June.

“We can see that households are already starting to reign in their consumption,” said Ylva Hedén Westerdahl, the institute’s head of forecasting, saying this was happening “a little earlier than we had thought”. 

“We thought this would have happened when electricity bills went up, and interest rates went up a little more,” she continued. 

The bank expects household consumption to contract in 2023, something that she said was “quite unusual” and had not happened since Sweden’s 1990s economic crisis, apart from in the immediate aftermath of the Covid-19 pandemic. 

This was partly down to a five percent reduction in real salaries in Sweden in 2022, taking into account inflation, which the institute expects to be followed by a further two percent fall in real salaries in 2023. 

If the incoming Moderate-led government goes ahead with plans to reimburse consumers for high power prices, however, this would counterbalance the impact of inflation, leaving Swedish households’ purchasing power unchanged. 

The institute said it expected inflation to average 7.7 percent this year and 4.6 percent in 2023, both higher than it had forecast earlier.

Sweden’s Riksbank central bank this month hike its key interest rate by a full percentage point, after inflation hit 9 percent in August, the biggest single hike since the 1990s. 

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