WRAPUP 5-German business sees Europe bailout stifling growth

* German sentiment falls on debt rescue package concerns

* IMF’s Lipsky says global recovery needs policy support

* Weaker euro could boost exports, help growth

* EU cracks down on hedge funds

(Adds Greek and Italian fin. ministers, hedge fund move, ECB)

By Sakari Suoninen

MANNHEIM, Germany, May 18 (BestGrowthStock) – German investor
sentiment fell sharply in May on concern growth will be stifled
by a 750-billion-euro ($930 billion) rescue package designed to
calm market fears of a wave of Greek-style debt crises.

Tough conditions, similar to those imposed in International
Monetary Fund (IMF) bailouts, have been set for euro zone states
seeking shelter from markets anxious about their debt levels.

The closely watched ZEW analyst and investor survey saw
medium-term growth down in Europe’s biggest economy.

“The EU rescue package will in the mid-term reduce budget
deficits, but it will also dampen demand and mid-term growth
will be dampened as well,” ZEW economist Michael Schroeder told
reporters. [nLDE64H12Y]

EU finance ministers meeting in Brussels meanwhile overrode
British objections and backed stricter rules on hedge funds as
part of efforts to learn the lessons of the global financial
crisis and create a more stable financial system. [nLDE64H14X]

Greece blames hedge funds for exacerbating its borrowing
problems by betting against its debt and wants them banned.
Italy’s Economy Minister Giulio Tremonti for his part called for
curbs on credit default swaps.

Eighty percent of the bloc’s hedge funds are located in
Britain. Any changes are likely to take effect around 2012.
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Greece was forced to seek a record 110-billion-euro bailout
this month as borrowing costs soared due to market fears it
could default on its enormous debts.

But markets then focused on other vulnerable euro zone
states, forcing the group’s leaders to devise a $1 trillion
safety net with the IMF to protect other vulnerable members.

The package prompted Germany, the biggest national
contributor, to abandon 16 billion euros of tax cuts designed
initially to lift its export-driven economy.

And with Spain and Portugal agreeing additional austerity
measures to rein in their budget deficits, the fear is the drive
to fiscal consolidation will slow growth — which the European
Commission already saw at just 0.9 percent in 2010.

Reacting to the ZEW survey, Unicredit analyst Alexander Koch
said increased savings efforts in neighbouring states would
reduce the demand for German exports.

“There the thumb screws are being applied to the budget:
i.e. tax increases and spending cuts. This dampens private
consumption and public investment,” he said.

U.S. President Barack Obama has discussed the debt crisis
with European leaders and some U.S. analysts warn the U.S.
economy, where GDP growth is forecast at 2.8 percent this year,
could stall again if Europe’s crisis fails to stabilise.

IMF First Deputy Managing Director John Lipsky said the
global economy “remains sluggish, uneven and still in need of
policy support”.

“As recent events in Greece have shown, risks remain
considerable,” he told a symposium in Tokyo. [nTOE64H06W]


Euro zone states are trying to smooth out wrinkles in their
rescue plan, which comprises standby funds and loan guarantees
that governments can tap if shut out of credit markets.

Greek Finance Minister George Papaconstantinou said the
talks would help markets realise that “there is clear
willingness and commitment on the part of the euro zone and
non-euro zone to help those countries that are in need, as long
as they do what is needed”.

The European Central Bank meanwhile drained 16.5 billion
euros from the commercial banking system on Tuesday to dull the
potential inflationary impact of government bonds bought to
support euro zone debt markets. [nLDE64H1ES]

On Monday, euro zone ministers agreed to consider a proposal
that broad macroeconomic outlines of national budgets be
discussed in advance at the European level, with speedier
penalty procedures for countries that breach EU budget rules.

“It is essential now that we show we are serious about
fiscal consolidation. I could sense broad support for the
Commission proposals (on economic surveillance),” said Economic
and Monetary Affairs Commissioner Olli Rehn.

The debt crisis and concerns over growth have hit the euro,
which has fallen some 14 percent against the dollar this year.

It edged up from Monday’s four-year low after officials said
Greece had received a 14.5 billion euro tranche of its EU
emergency loan, some of which would be used to repay in full an
8.5 billion euro bond maturing on Wednesday. [nLDE64H0X9]
(Additional reporting by John O’Donnell, Gavin Jones, Sumeet
Desai and Brian Rohan; writing by Jon Boyle; Editing by Kevin
($1=.8054 Euro)

WRAPUP 5-German business sees Europe bailout stifling growth