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Economic and european policy

In this section you find analyses and commentaries on European (and especially German) economic and fiscal policy. Particular attention is devoted to the institutional development of the EU, above all monetary union, and its individual policy areas.

259 (71-80)
December 6, 2016
Region:
Analyst:
Inequality is dominating the political debate in various countries still characterised by sluggish economic recovery and high unemployment even several years after the financial crisis. In this note we look at trends, drivers and solutions. Four points stand out from the trends. First, global income inequality has increased over the last three decades. Second, the integration of the EM into the global economy has allowed aggregate income levels to converge towards AE levels, lifting millions out of poverty. Third, the AE have been better able to control income inequality via redistribution. Fourth, aggregates can be deceptive. Rising income inequality is associated with globalisation, technological change and migration. At the same time they have had an undeniably positive impact on aggregate income. The policy dilemma is in resolving the tension between the increase in income and its unfair distribution. [more]
71
November 28, 2016
Region:
The question regarding the consequences of a Brexit for the EU, the United Kingdom and Germany is expected to remain unanswered for some time. The political uncertainties and exit scenarios range from a contentious separation to a second referendum. At present, however, we can expect that Frankfurt will be one of places to benefit most from a Brexit. In light of the differences between the size of London and Frankfurt, London's crumbs could become Frankfurt's pie. The relocation of jobs to Frankfurt is also likely to boost property demand. The additional demand potential is welcome on the Frankfurt office market because it will equalise structurally induced reductions in the financial sector and will tend to lead to further reductions in vacancies and increase rents. The assumed 5,000 office workers are likely to relocate to the highly priced sub-markets close to the city centre. However, as new building projects also focus on these sub-markets, positive demand effects will be diluted. Because of existing demand overhangs, disadvantages are emerging on the Frankfurt residential property market from a potential relocation of employees. Price growth and the shortage of housing will remain elevated for the foreseeable future. An additional 5,000 homes and a correspondingly elevated housing shortage are likely to drive prices up by more than EUR 100 per m². While purchase prices remain affordable thanks to low interest rates, they are strongly dependent on future interest rate developments. [more]
73
November 8, 2016
Region:
Over the next three to five years, global trade is likely to grow only at or around the same pace as global GDP. This structurally weaker momentum will be reflected in slow growth in the global and regional flow of goods, as has already been the case in recent years. In its role as an open, export-oriented economy, Germany – and the German logistics sector in particular – will continue to feel the sting of this development. At a nominal average of 2% a year, turnover growth in the sector is likely to be below the long-term average in the years ahead. [more]
74
November 8, 2016
Region:
It was obvious that the Chinese government was not amused when, in light of the ever-expanding list of German technology companies being bought up by Chinese investors, the German Minister of Economic Affairs Sigmar Gabriel spoke of the lack of reciprocation in Chinese investment conditions for German companies. According to press reports, in the first half of this year alone, Chinese companies invested at least EUR 8 billion in German companies. [more]
75
October 28, 2016
Region:
German wage growth slowed in H1 2016 and there is a range of factors that are likely to also put a lid on the pick-up in 2017. The impact of labour shortage is limited by material mismatch between the qualifications of the unemployed and those sought by employers as well as substantial immigration flows. High real wage gains have pushed up unit labour costs and weighed on corporate profitability, which is further undermined by low productivity growth. Cautious wage agreements in 2016 on average stipulate only 2% wage increases in 2017. Despite a 4% increase in the statutory minimum wage, aggregate wages should increase by only around 2 ½%. According to our forecasts, next year could see the growth rate for industrial production in Germany drop to 0.5% in real terms. Regarding output in Germany’s large industrial sectors we do not expect major outliers. Also in this issue: “The View from Berlin. All lights on the debates about personalities and tactical gambits.” [more]
77
October 4, 2016
Region:
The policy of low and negative interest rates has had a limited impact on the returns on household financial assets in Germany to date. The nominal total return has averaged 3.4% over the last four years. Even nominal returns on interest-bearing investments did not slip below 2% until 2015 because a large proportion of longer-dated and mostly higher-coupon investments dampened the effect of evaporating market returns. High and stable revaluation gains have also buttressed total returns over recent years. They have probably been enhanced in no small measure by the ECB’s Quantitative Easing programme. Interest income and revaluation effects are likely to be a greater burden in 2016 and 2017. The income return on other assets is also likely to drop on account of the financial market environment. The scope for further significant revaluation gains is likely to be limited given already very high valuations. In 2017 the real total return could even become negative (again). [more]
78
September 30, 2016
Region:
Brexit affects regional policy both in the UK and in the EU27. It has a direct impact via financial adjustments for the individual funds, and indirect effects, possibly influencing the budgetary debates to come and adjusting regional policy priorities. However, the effects are highly contingent on the timing of Brexit and the planning processes and preparations for the new EU budget beyond 2020. The biggest stakes are potential changes to the structural funds which invest all across the EU. Finally, there is the issue of possible future cooperation between the EU27 and the UK after a Brexit. In principle, regional policy programmes already provide for some options here. However, the specific arrangements and conditions are only going to be defined as part of the negotiations to structure the new relationship. [more]
79
September 29, 2016
Region:
Analyst:
Ensuring sufficient funding for European start-ups forms an integral part of the emerging European Capital Markets Union (CMU). Cost-efficient solutions are necessary to reverse the 40% decline in small IPOs in recent years. To strengthen bank lending to start-ups, reviving the securitisation market and potentially establishing an SME-covered bond market is crucial. Venture capital investments are also subdued – most recently, they were only one tenth of the level in the US. To increase them, institutional investors should be granted more flexibility in their portfolio allocations. Finally, the EU hosts more than 500 crowd funding platforms. A common legal and regulatory approach could stir consolidation and thereby reduce search costs for investors and borrowers alike. [more]
80
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