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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

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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