The Latest News on the Economy

Return of inflation gives Germany a cold sweat.

“Inflation is eating away at our economies”, “this is how pensions melt”: the recent rise in prices in Europe, in a context of post-pandemic recovery, is making headlines in Germany, where monetary stability is a totem pole.

The statistical institute Destatis is due to unveil the price index level in June on Tuesday, expected at 2.1% by Factset analysts, after an acceleration of 2.5% in May.

According to the German Central Bank, this slight downturn should be short-lived; inflation could reach almost 4% by the end of the year.

Both in Europe and the United States, this phenomenon is linked to cyclical effects, particularly the recovery of economies after the shock of the coronavirus, a rise in energy prices, or shortages in supply chains, upset by the health crisis.

But it is particularly worrying in Germany, where a stable and robust currency is synonymous with good economic health.

The country’s tabloids, such as BILD and economic newspapers, have multiplied the headlines in recent weeks, worrying about the impact of rising prices on savers.

At the beginning of June, a report from Deutsche Bank, the country’s leading bank, sounded the alarm in a statement backing up analyzes by central banks, which qualify the phenomenon as transitory.

The return of inflation is a “time bomb”, which could settle in “the long term” because of the “rise in sovereign debt”, “even in Germany, which benefits from a credible fiscal policy “, they said.

According to the German Central Bank, the rise in prices is expected to subside by 2022.

But “it is possible, under certain circumstances, that [inflation] wakes up and becomes a problem again”, conceded its president, Jens Weidmann, on Monday before a congress in Frankfurt.

Germany’s epidermal reaction to rising prices is no surprise: the memory of the hyperinflation of the 1920s is still lingering.

Ruined and indebted by the First World War, the young Weimar Republic had to turn the printing press, triggering between 1921 and 1924 a phenomenon of hyperinflation rarely equaled in history, profoundly marking the conscience.

“After the war, this event was interpreted as an essential element of the rise to power of Nazism, even if it is not quite the historical reality”, comments to AFP Mark Spoerer, the historian at the University. Of Regensburg.

-Elections-

Conservative President (CDU) Armin Laschet, Greens co-leader Annalena Baerbock and German Finance Minister Social Democrat Olaf Scholz during a televised debate in Berlin on June 26, 2021 (POOL / CHRISTIAN MANG)

Conservative President (CDU) Armin Laschet, Greens co-leader Annalena Baerbock and German Finance Minister Social Democrat Olaf Scholz during a televised debate in Berlin on June 26, 2021 (POOL / CHRISTIAN MANG)

This hot topic could become an essential point of public debate, given the next legislative elections, which must appoint, on September 26, a successor to Chancellor Angela Merkel, who is leaving power after 16 years of reign.

The campaign will mainly see the conservatives (CDU), led by the Chancellor’s close friend, Armin Laschet, and the environmentalists (Grünen) of Annalena Baerbock, face each other.

The inflationary danger could “benefit the conservative parties, because the Greens will find it difficult to explain that their program will not fuel this phenomenon,” said Holger Schmieding, chief economist for the German bank Berenberg.

The Greens want adaptations to the strict rules to invest against climate change and the modernization of the German economy.

On the contrary, the CDU remains committed to a return to strict budgetary discipline after the pandemic, making it possible to curb inflation.

“Social peace in Europe requires a return to fiscal discipline,” the well-respected former finance minister Wolfgang Schäuble, currently speaker of parliament, has already said in a column to the Financial Times.

On the side of the Social Democrats, the current Minister of Finance, and head of the SPD list, Olaf Scholz, insisted in early June that “it was a transit phenomenon.

Leave a Reply

Your email address will not be published. Required fields are marked *