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Germany Faces Up To Aftermath Of Floods

News Posted On: 18 June 2013

Property in Munich

Heavy rains on already-soaked soils have resulted in record-breaking floods in Northern Europe, with Austria, Germany and Hungary the worst affected. The Elbe and Danube rivers have overflowed their banks, causing extensive property damage to Germany, the Czech Republic, Austria, Slovakia and Hungary; the peak of the floods is now moving downstream towards Serbia.

Fitch Ratings, the credit ratings agency, said it expected to see the total cost to insurers of the floods reach between €2.5bn and €3bn in Germany alone. However, Fitch said it thought the cost of the flood damage overall would be closer to €12bn. The difference, Fitch suggested, may be down to the fact that many residents of flood-prone plains have been unable to secure affordable coverage against flooding, particularly in the light of recent increases in both the frequency and intensity of flooding.

Germany’s Chancellor, Angela Merkel, has announced a €8bn fund to repair the damage caused by the fortnight-long spate across Germany. The deal was agreed earlier this week in talks between Germany’s central government and representatives of the federal republic’s 16 states. Ms. Merkel said the money would be raised by new borrowing rather than by increases in taxation or direct government spending, and stated that it would not affect the government’s plans to achieve a structural budget balance next year. Industry estimates put the damage caused by the flooding at more than €11bn.

One result of the floods has been to polarise Germany’s leadership candidates. German elections are this summer and Ms. Merkel has visited all the main German states affected by the floods, while her strongest challenger, Peter Steinbruck, has stayed away, saying he declined to participate in such ‘blatant electioneering.’ In 2002, Germany saw major floods and Chancellor Gerhard Schroder gained a strong poll lead by visiting the inundated town of Dresden while his rival Edmund Stoiber was seen as returning too late from his holidays.

With the promise of reconstruction money in the offing, the floods are unlikely to damage Germany’s economy as a whole, according to Halle-based German think tank Institut fuer Wirtschaftsforschung (IWH – Institute for Economic Research). The group expects Germany’s economy to gain momentum once the cleanup effort begins, as happened in August of 2002 after the last major bout of flooding to hit Germany. Then, consumer spending rose, accompanied by a surge in infrastructure investment, following the floods. The IWH foresees the same thing happening this time around.

The IWH expects the floods to cost the German economy at least €6bn, well below the forecasts from the Association of German Chambers of Commerce and Industry. Since much of the damage is to uninsured homes in flood-prone regions, can we expect a rising housing market in Germany or will floodwaters leave it permanently waterlogged?

Ulrich Grillo, head of Germany’s BDI industry association, said it would be ‘difficult’ to assess the impact of the floods, but added that reconstruction work would probably compensate for the initial drag on the economy. In the short term, however, affected German towns are likely to see a mirror of the effects of the recent storms in Jersey: reduced consumer spending and a housing market that’s slowed as spare money goes on renovations and damaged homes are taken off the market to be fixed up before they’re sold.

Written by - overseas property reporter

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