English version of ˮDie Geschichte lehrt uns: Wohnungsmärkte bieten Inflationsschutzˮ

The banking industry in Europe is entering the corona recession with strong capital levels and ample liquidity, though still only moderate profitability. Revenues will come under substantial pressure this year, loan loss provisions will jump and net income will fall materially – many banks may well make losses. However, there is likewise massive support from the public sector, with governments propping up the real economy, central banks the financial markets and supervisors relaxing rules for banks. This should mitigate the hit. Nevertheless, the risks are profound and a prolonged shutdown could even trigger a renewed banking crisis. Enormous uncertainty regarding its depth and length notwithstanding, the current crisis may well turn out more severe than the macro-financial shock scenario underlying the latest European bank stress test. Its magnitude could possibly even exceed the financial crisis and the Great Recession. [more]

The corona pandemic and the related travel restrictions and lockdowns have caused both domestic and cross-border travel to collapse. All types of transport are affected. If the lockdowns remain in place over the summer months, traditional tourist destinations, for example on the Mediterranean, will suffer major economic losses. [more]

In their fight against the spread of COVID-19 over the last weeks, EU governments introduced temporary restrictions to border traffic of various degrees ranging from border controls to outright closure. In several cases this had a severe impact on freight traffic as border controls led to tens of kilometres of traffic jam, such as between Poland and Germany. [more]

Last week's special Council meeting on the next EU budget 2021-2027 ended without an agreement. When EU leaders left Brussels on Friday after close to 30 hours of negotiations, there was no timeline set for further talks. In our view, it would have been a surprise if the meeting had led to a big breakthrough, given the traditionally contested nature of negotiations between net contributors and recipients of the seven-year budget. This time, the situation is much more complicated, as Brexit leaves a sizeable gap of around EUR 60-75bn in the ~EUR 1tr budget. Still, despite the meticulous preparations of Council President Charles Michel, including a marathon of bilateral meetings with EU leaders ahead of the summit and a new compromise budget proposal, not even a preliminary agreement regarding the approximate size of the Multiannual Financial Framework (MFF) could be reached. [more]

European banks continue to strive to not fall further behind. Revenues and costs in the first three quarters of 2019 were flat compared to their levels a year ago. Remarkably, interest income rose despite even lower interest rates. Loan loss provisions edged up from record lows. Net profits fell moderately but remained solid. Balance sheet growth was the strongest in years as banks fight to hold their ground against an array of new competitors. Along with the struggle to improve revenues, 2020 may be shaped by Basel IV implementation, continuing geopolitical risk and a fragile macroeconomy. [more]

With their „European Green Deal“, the European Commission expressed an admirable ambition to be climate-neutral by 2050. Are such ambitious long-term goals good for the credibility of European climate protection policies? Especially when they include only the vaguest notions of how to get there, and when the measures for more efficient climate protection that can be implemented in the short-to-medium term are not making sufficient progress? I don’t think so. [more]

Passenger numbers at German airports recently fell for the first time since December 2017. The decline is largely due to economic reasons, such as the cyclical slowdown and lower supply due to airline bankruptcies. Air travel is increasingly coming into the focus of climate-policy regulation. Traffic at regional airports may be hit most. In contrast, large airports are likely to see passenger numbers increase further. “Flight shame” looks set to remain a niche phenomenon. [more]

In the lending and deposit-taking business with retail customers, there are substantial differences between the federal states. 30 years after the fall of the Berlin Wall, per capita loan volumes in east Germany are significantly lower than in the west. The latter, in turn, is characterised by a certain north-south divide. Savings banks have a market share of 25-35% throughout the country, whereas cooperative banks have a much stronger presence in the south and west than in the east and north. The large banks achieve an above-average market share of 20-25% in the city states and east Germany. The spread between the federal states is smaller for deposit volumes than for credit volumes. Primarily the savings banks, cooperative banks and other commercial banks have to cope with a considerable deposit overhang and thus an "investment plight" in the negative interest rate environment. In east Germany, the deposit overhang is particularly large. Due to digitisation, changes to the established regional focuses might now be possible. [more]

Trading volumes in foreign exchange instruments have increased significantly across the board in 2019 compared to the last global FX survey three years ago. Surprisingly, the pivotal role of London as the main trading location was reconfirmed, despite fears around the impact of Brexit. Yet a general move to central clearing might challenge this after the UK leaves the EU. [more]

The climate action package is a classic example of political compromise. It aims to support climate protection without overextending private households and companies. Criticism is perfectly justified. In the final analysis, however, the climate action package is also a reflection of the society's attitude towards climate protection: Whilst a majority of Germans support more climate protection, only a few are willing to shoulder the financial burdens. [more]

Improved performance in the second quarter has given European banks hope that 2019 may still end on a more conciliatory note and that longer-term prospects are not quite as gloomy as some fear. In H1, net interest income rose year-over-year, despite unrelenting margin pressure. Other revenue components were mixed, with fee and commission income disappointing again. Loans and total assets in general increased. Banks cut expenses further, while loan loss provisions picked up from record lows. In the end, profitability and capital levels remained largely stable. Once more, the transatlantic gulf in performance widened slightly, as US banks reported another rise in net income to a new all-time high. [more]

So far, Germany’s efforts to arrive at a more sustainable energy profile (the ‘Energiewende’) have focused on the electricity sector. However, attention is increasingly shifting towards the transport sector and its steadily rising carbon emissions. Decades-old demands, such as replacing road by railway transport, are being repeat-ed once again, even though they have been found impossible to realise. And some new concepts are being presented, such as micro e-mobility. However, their contributions to transport reform are negligible at best; they may even prove counterproductive. Ultimately, the solution is simple, if uncomfortable: long-term climate protection goals (i.e. virtual carbon neutrality) can only be reached by a considerable decline in traffic, unless technology makes significant progress. Policymakers will find it difficult to convey this message, seeing that individual mobility is one of the key concepts of a liberal society. [more]