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English version of ˮDie deutsche EU-Politik post-Merkel: Grüner, aber finanzpolitisch weiterhin eher konservativˮ

July 12, 2021
Region:
All eyes are on the next government’s EU fiscal stance. The Greens are advocating looser debt rules and turning the NGEU into a permanent fiscal capacity. However, in the two most plausible coalition scenarios, the Greens have to find common ground with either the Conservatives (black-green coalition) or the Liberals (traffic light coalition). Both call for re-instating the debt rules in the post-pandemic world and emphasize the one-off nature of the NGEU. Thus, we do not expect any significant shift of Germany’s EU fiscal policy course. The odds of an election surprise contributing to a stronger EUR remain low. The autumn debate about the reform of the SGP will be the first proof of this new/old fiscal stance. Beyond the immediate focus of financial markets, we also sketch which impulses we expect from the next German government in the areas of EU climate, trade, foreign policies and institutional reform. With respect to putting the Green Deal to work, we expect Germany to role-model green transformation at measured pace. The German response to this week’s “Fit for 55” legislative proposals is likely to be mixed. [more]

More documents from Ursula Walther

14 Documents
February 15, 2024
1
Current EU Commission President von der Leyen is expected to announce that she is running for a second term on Monday. With less than four months to go until the June 6-9 European parliament elections, we provide an update on current developments and address the following questions: What is the likelihood of a von der Leyen 2.0 Commission and what could be the main policy priorities of the next Commission? To what extent could the prospect of a Trump 2.0 administration be a catalyst for an EU defence capability and spending boost? What do current polls tell us about a possible right-wing shift of the European parliament? How would this impact EU policy making? Which legislative proposals might still be finalised in the current legislative term? [more]
January 29, 2024
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2
Risk capital markets are key to financing the innovations needed for the twin transition. They spot promising startup companies and provide them with funding to realise their growth potential. Venture capital (VC) investment volumes in the EU have increased almost fivefold over the past decade. However, the market remains much smaller in Europe than in the US, making it more difficult for young European firms than their US peers to scale up. To grow further, VC firms in the EU need not only to overcome the current market slump, but also to address structural issues related to fundraising, scaling up investments, and the exit environment. [more]
January 9, 2024
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3
With exactly five months to go until the European Parliament elections on June 6-9 we are hereby launching our EU Election Monitor. This first edition is a primer answering key questions like:
Why do EP elections and the composition of the next EU Commission matter for the EU economy?
What do current polls tell us about the likelihood of a second VdL Commission?
What could be the main policy priorities of the next Commission?
Which legislative proposals might still be finalised in the current legislative term?
What a right-wing shift in the European Parliament would mean for EU policy making?
What is the impact of EP elections on the timing of potential Excessive Deficit Procedures under the EU fiscal rules? [more]
December 8, 2023
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4
The external environment as well as monetary and fiscal policy should provide strong headwinds. Sentiment will likely be dragged lower by the increasingly evident structural problems. We anticipate a modest recession during the winter half to be followed by a gradual recovery from spring onwards. We expect the government to survive the internal quarrels with respect to the 2024 budget, following the constitutional court ruling. Debt brake reform is unlikely in the short run. A cross-party consensus for a Transformation Fund 2.0 might emerge before September regional elections. [more]
October 13, 2023
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5
A double-dip recession. Hard and soft data point to a GDP contraction of about 0.3% in Q3. Despite receding inflation,we expect that private consumption will only gradually come out of its rut, as consumer confidence has remained depressed. While the overall decline in GDP over the double-dip recession (Q4 22/Q1 23 and Q3 23) will probably be less than 1 percentage point, a renewed fall in GDP provides another blow to already downbeat German confidence. This negative feedback loop will likely weigh on the economy in 2024. In particular, structural supply bottlenecks look set to hamper growth opportunities and the energy transition is likely to slow potential growth in Germany towards 0.5% and keep the inflation rate above 2%. [more]
October 5, 2023
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6
In this report, we provide an update on key developments in German politics:
#1 How to tackle the growth malaise - tax reform and cutting red tape as first steps. Despite dwindling poll numbers and weak growth prospects, the government’s appetite for sweeping structural reforms appears limited. We take a look at the government’s “10 point action plan”, the proposed corporate tax reform, and renewed efforts to cut red tape.
#2 Rise of the far-right. Sticky inflation, change-fatigue and rising immigration have contributed to rising approval rates of the far-right AfD, reaching an all-time high at 21.5% in opinion polls in recent weeks. We analyze what that means for coalition building in the upcoming regional elections (both this weekend and next year) and how this might influence the overall policy debate at the federal level.
#3 Polls suggest conservatives set to win regional elections in Bavaria and Hesse on October 8. We give an update on how Sunday’s regional elections in two of Germany’s most populous states might impact national policy-making and the likelihood of agreeing on a new set of EU fiscal rules by year-end. [more]
July 25, 2023
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7
Germany’s growth is under pressure from renewed cyclical and structural headwinds. In this edition of Focus Germany we introduce our new Nowcast Model for German GDP, predicting that the German economy should have expanded in Q2, but that risks for activity in H2 are increasing. We take the summer break in Berlin as an opportunity for a midterm review of the traffic-light coalition’s work. In a historic flashback we revisit the challenges Germany was facing when the Economist called it the sick man of the euro and which policy measures transformed the country into an Economic superstar a decade later. We find interesting parallels to today’s situation. [more]
May 26, 2023
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8
With Q1 GDP growth revised to -0.3% we now expect annual GDP to shrink by 0.3% in 2023. With the expected US recession weighing on German economic momentum towards year end we have cut our annual forecast for GDP growth in 2024 to 0.5% from 1.0%. Meanwhile, the energy transition policy is putting strains on government cohesion, as can be seen from the failure to agree on a piece of climate legislation this week. Spending pressures and debt-brake limits add to tensions. Still, none of the three ruling parties has an incentive to trigger early elections. [more]
March 9, 2023
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9
The German economy – one year after. With surprisingly strong hard data for January, chances are rising that GDP might be saved from another decline in Q1. Although not yet our baseline call, this would prevent Germany from going through a technical recession. However, still heightened uncertainty and real income losses due to high inflation will likely keep investment spending and private consumption flatlining in the first half of the year. Hence, we maintain our 0% forecast for 2023 German GDP growth, although upside risks have increased since the start of the year. [more]
March 3, 2023
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10
London continues to be the leading trading hub for OTC interest rate derivatives with a market share of 46% and an average daily turnover of USD 2.6 tr. However, the UK has lost ground since 2019 when its market share was still 51%. This is due to the transition away from Libor as well as the ongoing efforts of EU authorities to bring more derivatives clearing into the bloc. [more]
January 12, 2023
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11
Climate stress tests have emerged as a key tool for looking into the financial system’s vulnerability to climate risks. Banks’ exposure to climate risks stems from (1) physical risks that are closely related to geography, and (2) transition risks mainly from loans to carbon-intensive sectors. Exercises by the ECB and BoE suggest that banks’ credit losses in a disorderly transition would be higher than in an orderly transition scenario, and even higher in a “hot house world” with unabated global warming. Banks would be able to absorb climate-related losses due to strong capital buffers. Results are subject to data limitations and modelling constraints. So far, climate stress tests are declared learning exercises with no direct implications for capital requirements. However, supervisors are urging banks to set up a comprehensive climate risk management. [more]
September 2, 2022
Region:
12
For the financial sector, sustainable finance is steadily moving up the priority list. It is about incorporating environmental, social and governance (ESG) considerations into finance. The global volume of ESG-labelled assets grew to USD 35 tr in 2020 and may reach USD 41 tr by the end of this year. Despite strong growth, sustainable finance still faces obstacles such as the absence of a universally accepted definition of ESG and a lack of data on ESG metrics. Regulation is trying to keep pace with market dynamics to facilitate the flow of funds into sustainable activities. Key initiatives include the establishment of taxonomies, disclosure rules and product-related regulation. In the short term, sustainable finance faces headwinds from adverse macroeconomic conditions and emerging regulatory requirements, but the fundamental growth drivers remain intact. [more]
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