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ECONOMY

Allianz chief: don’t go back to Deutschmark

The head of German insurance giant Allianz says a return to the Deutschmark would lead the country into a “deep depression.”

Allianz chief: don't go back to Deutschmark
Photo: DPA

“A return to the Deutschmark would be irresponsible,” Allianz CEO Michael Diekmann told the newspaper Welt am Sonntag. “Therefore we should stop toying with the idea.”

Diekmann said his company has made economic calculations for what would happen if Germany were to give up the euro, and that the result would be a deep depression in which a quarter of the gross domestic product (GDP) would be lost within four to five years.

As a way out of the euro crisis, the head of the Munich-based insurer called for a stronger political union “that will only work with more shared responsibility and financing.”

He said limits need to be established on how one country helps another in the eurozone. “Whoever helps another country must also have the possibility of control,” he told the paper.

Diekmann also called for a political process in which there was more public participation. “The question is, what model can one use to convince the people of Europe,” he said.

DPA/DAPD/The Local/mbw

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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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