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ECONOMY

Berlin faces isolation on ECB euro rescue role

Germany faced mounting pressure Sunday to let the European Central Bank (ECB) save the crisis-hit eurozone, as reports surfaced of IMF contingency bailout planning for a re-modelled Italy.

Berlin faces isolation on ECB euro rescue role
Photo: DPA

With bond market vultures circling even gold-plated economies, and Italy’s La Stampa daily citing IMF officials on a rescue plan worth up to €600 billion ($794 billion), another of Germany’s closest Triple A-rated allies jumped ship on the ECB’s role to leave Berlin isolated.

Amid predictions that the currency faces its death throes within weeks failing radical intervention, Austria joined Finland in backing ECB action to stem financial market contagion threatening Italy, Spain and even France.

The pressure has intensified since Germany itself struggled to raise public finance on commercial money markets, in a potential tipping point for the balance of power within the eurozone on the painful debate about integrating public finance across borders.

“The European Central Bank could perform a more powerful role, as in the United States,” Austrian Prime Minister Werner Faymann said, also giving his support to the creation of commonly-issued eurobonds.

“It could itself buy states’ bonds,” he said on the sidelines of a congress of European Socialist parties in Brussels.

That meant a large-scale ramping up of carefully targeted action on the sell-on, secondary bond market, trying to prevent interest rates for Italy or Spain from skyrocketing to the levels that forced bailouts on Greece, Ireland and Portugal.

The scope for direct ECB action at primary level, as long sought by US, British and other G7 partners among the world’s most powerful economies in an accelerating crisis, will be the unspoken nub of euro finance ministers’ talks on Tuesday night in Brussels.

Finland’s finance minister Jutta Urpilainen said Friday: “I think we have seen that if there is nothing else left then we can think about strengthening the role of the ECB.”

In Strasbourg last week for a mini-summit with France and Italy, German Chancellor Angela Merkel said politicians should not intervene in ECB decision-making.

“The French president has just underlined that the European Central Bank is independent,” she said, but a smiling Sarkozy interjected: “All three of us said that with respect for the independence of this institution, one should refrain from positive or negative demands of the ECB.”

The Financial Times Deutschland interpreted that exchange as proof that France, the most vociferous eurozone backer of a turbo-charged ECB role at the heart of the continent’s politics, was winning the day.

“By committing to silence, Merkel and Sarkozy are freeing the ECB to make a more forceful intervention in the crisis,” it said.

A French government source said pressure has been piled on Merkel for months, citing the meeting alongside new Italian premier Mario Monti and an invitation for US President Barack Obama to join a French-German huddle in Cannes during a G20 summit last month.

“The idea was to point out to Merkel that, even Monti, who is willing to go much further than Berlusconi was in reforming Italy, won’t make it without ECB intervention – the way all other central banks act,” said the source.

The IMF loans, at rates of 4.0 percent or 5.0 percent, would give Monti a window of 12 to 18 months to implement urgent budget cuts and growth-boosting reforms “by removing the necessity of having to refinance the debt,” La Stampa quoted an IMF official as saying.

In Paris, the view is clear: unless Merkel turns completely, not even Germany will be able to stand in the way of market pressures.

It is a position adopted by many economists, the outspoken Jacques Attali going as far in one interview as to say the real question, rather than a threat to France’s Triple A rating, was “will the euro still exist at Christmas?”

Britain’s banks have started drawing up contingency plans for the possible dismantling of the eurozone, a senior official at its Financial Services Authority said last week.

AFP/mry

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ECONOMY

‘Tougher times’: Sweden’s economy to slow next year

Consumers in Sweden are set to crimp spending over the rest of the year, pushing the country into an economic slowdown, Sweden's official economic forecaster has warned in its latest prognosis.

'Tougher times': Sweden's economy to slow next year

A combination of record high energy prices over the winter, rising interest rates, and inflation at around 10 percent, is set to hit household spending power over the autumn and winter, leading to lower sales for businesses and dragging economic growth down to just 0.5 percent next year. This is down from the 1.2 percent the institute had forecast for 2023 in its spring forecast. 

“I don’t want to be alarmist,” Ylva Hedén Westerdahl, forecasting head at the Swedish National Institute of Economic Research, said at a press conference announcing the new forecast. “We don’t expect the sort of economic slowdown that we saw during the financial crisis or the pandemic, where unemployment rose much more. But having said that, people who don’t have a job will find it tougher to enter the labour market.” 

She said that a shortage of gas in Europe over the winter, will push electricity prices in Sweden to twice the levels seen last winter, while the core interest rate set by Sweden’s Riksbank is set to rise to two percent. 

As a result, Sweden’s unemployment rate will rise slightly to 7.8 percent next year, from 7.7 percent in 2022, which is 0.3 percentage points higher than the institute had previously forecast. 

On the plus side, Westerdahl said that she expected the Riksbank’s increases in interest rates this year and next year would succeed in getting inflation rates in Sweden under control. 

“We expect a steep decline in inflation which is going to return to below two percent by the end of 2023,” she said. “That depends on whether electricity prices fall after the winter, but even other prices are not going to rise as quickly.” 

After the press conference, Sweden’s finance minister, Mikael Damberg, said he broadly agreed with the prognosis. 

“I’ve said previously that we are on the way into tougher times, and that is what the institute confirms,” he told Sweden’s state broadcaster SVT. “There’s somewhat higher growth this year, at the same time as fairly high inflation which will hit many households and make it tougher to live.”

Damberg called on Sweden’s political parties to avoid making high-spending promises in the election campaign, warning that these risked driving up inflation. 

“What’s important in this situation is that we don’t get irresponsible when it comes to economic policy,” he said. “Because when parties make promises left, right and centre, it risks driving up inflation and interest rates even more, so Swedish households have an even tougher time. Right now, it’s important to prioritise.” 

 The call 

Sverige är på väg mot lågkonjunktur enligt Konjunkturinstitutets (KI) senaste prognos. Enligt finansminster Mikael Damberg (S) är det därför viktigt att Sverige sköter sin ekonomi ansvarsfullt och vågar prioritera.

– Jag tror att alla partier behöver vara lite återhållsamma och inte lova för mycket, säger han.

Mikael Damberg tycker att KI tecknar en realistisk bild av Sveriges ekonomiska verklighet.

– Jag har sagt tidigare att vi går mot tuffare tider och det är väl det som KI bekräftar. Något högre tillväxt i år men sämre tillväxtförutsättningar nästa år samt fortsatt ganska hög inflation som slår mot många hushåll och gör det tuffare att leva, säger han.

Och vad vill regeringen göra åt det?

– Det är viktigt att vi i det här läget inte är ansvarslösa i den ekonomiska politiken. För när partier lovar vitt och brett till allt riskerar vi att driva upp inflationen, öka räntan ytterligare och svenska hushåll får det svårare. Nu måste man våga prioritera.

Se intervjun med Damberg om konjunkturläget klippet ovan.

“Electricity prices are going to be twice as high as last winter,” said 

Elpriserna kommer att bli dubbelt så höga som förra vintern, säger Ylva Hedén Westerdahl, chef för Konjunkturinstitutets prognosavdelning, på en pressträff.
Den lågkonjunktur som KI ser framför sig kallar hon trots det för en mjuklandning. Den handlar främst om att människor kommer att ha mindre pengar att konsumera.

“Brist på gas i Europa gör att energipriserna ser ut att bli rekordhöga under vintern”, skriver KI, och ser att inflationen kommer att närma sig 10 procent.

Deras prognos för styrräntan är att den ligger på 2 procent vid årsslutet, vilket gör att inflationen faller tillbaka snabbt under nästa år och Riksbanken låter då räntan ligga still.

KI tillägger att de offentliga finanserna är fortsatt starka och de bedömer att det finns ett budgetutrymme på runt 120 miljarder kronor för de kommande fyra åren.

Vad gäller BNP spår KI en blygsam tillväxt på 0,5 procent nästa år – en nedskrivning från tidigare 1,2 procent.

Prognosen för arbetslösheten under 2023 är 7,8 procent, 0,3 procentenheter högre än tidigare prognos.

Fredrik Fahlman/TT
Johanna Ekström/TT

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