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

Economic and european policy, Germany's super election year 2021

Topic:

Analyst:

Barbara Boettcher, Marion Mühlberger

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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]

Deutsche Fassung ➜

Germany’s fiscal situation: Full employment and zero interest rates result in budget surpluses – but demographic development might become a problem!

July 19, 2017

Region:

Bundestag elections 2017, Economic and european policy, Macroeconomics

Topic:

Analyst:

Sebastian Becker

Germany Monitor

109

In an international comparison, Germany’s fiscal situation is very good – thanks to robust GDP growth and zero interest rates. In the short to medium term, dynamic revenue growth should help to ensure that Germany’s fiscal situation remains comfortable, even though expenses look set to rise strongly as well. Public finances are currently benefiting from buoyant growth, low interest rates and a “demographic respite”. Rising interest rates and the ageing society look set to put the public finances under considerable pressure from the middle of the coming decade. However, the long-term fiscal risks do not appear to play a major role in the current election campaign. [more]

Overheating risks are looming

July 7, 2017

Region:

Economic and european policy, Macroeconomics, Real estate

Topic:

Analyst:

Barbara Boettcher, Dieter Bräuninger, Jochen Moebert, Stefan Schneider

110

The German economy is likely to have maintained its rapid growth rate in the second quarter. Consumer spending, in particular, has been stronger than expected thanks to the recent fall in oil prices and the continuing significant rise in employment levels. We have revised our GDP forecast for the whole year upwards to 1.6% (1.3%) which is equivalent to a calendar-adjusted rate of 2%. Considerable house price increases in 2017 and 2018 – and more significant wealth effects? The view from Berlin. Summertime and election campaigns. [more]

Defence spending, fiscal stimulus and European integration

July 3, 2017

Region:

Economic and european policy

Topic:

Analyst:

Barbara Boettcher, Kevin Koerner, Mark Wall

Focus Europe

111

European defence and security spending is a thread that connects several disparate themes: the refugee crisis and the need to better secure EU borders; US criticism of Europe’s NATO spending; and the move towards closer European integration. [more]

EMU reﬂection paper mere “wish list” or plausible way forward?

June 9, 2017

Region:

Economic and european policy

Topic:

Analyst:

Barbara Boettcher, Kevin Koerner

Focus Europe

112

The reflection paper contains two stages for the evolution of EMU. The first stage is about completing processes that remain open, for example, the Banking Union (BU) and the Capital Markets Union (CMU). Even here the decisions are not without political controversy, such as deposit
insurance and a fiscal back stop for the Single Resolution Fund. [more]

Above-average pay in export sectors

May 24, 2017

Region:

Economic and european policy, Macroeconomics, Sectors and resources

Topic:

Analyst:

Eric Heymann

Chart in Focus

113

The traditional German export sectors pay their employees above-average wages and salaries. The top right-hand quadrant of the chart shows those sectors that generated a foreign trade surplus in 2016 and also paid their employees gross wages and salaries above the average for the manufacturing sector as a whole. In the automotive industry alone, the foreign trade surplus in 2016 was EUR 122 billion (39% of the total surplus). Wages and salaries in this sector were 27% higher than the industry mean. Mechanical engineering took second place in terms of foreign trade surplus (2016: EUR 94 billion). [more]

Diesel – prematurely written off?

April 28, 2017

Region:

Economic and european policy, Macroeconomics, Sectors and resources

Topic:

Analyst:

Eric Heymann

Talking Point

114

The diesel scandal and political uncertainty surrounding future regulation are the main reasons why the proportion of vehicle registrations accounted for by diesel cars has slumped recently in Germany and most other EU countries. If the automotive industry wants to continue to rely on diesel technology, it needs to regain credibility and get to grips with the issue of emissions – including in real-world driving conditions. If it doesn't manage to do this, lawmakers are likely to progressively tighten the regulatory framework for diesel cars. However, should the industry succeed in bringing to market clean diesel cars at affordable prices, these cars would remain the most economical option for a large proportion of motorists – at least until alternative drive technologies become competitive from the customer perspective. This would make current proclamations of the death of diesel somewhat premature. [more]

Investment: Public, residential gradually picking up

April 6, 2017

Region:

Economic and european policy, Macroeconomics

Topic:

Analyst:

Dieter Bräuninger, Jochen Moebert, Oliver Rakau, Orçun Kaya, Stefan Schneider

115

In international debate public investment is often regarded as a useful lever for promoting higher domestic demand. Despite international criticism and political declarations of intent, public investment in Germany has only increased moderately over the past two years and has remained average, at best, on an international scale. In the coming years, however, public investment is expected to grow significantly. The current investment plans for the federal budget are 40% higher than those adopted in 2013. Public contracts for the construction industry in 2016 were between 15 and 27% above the average of the previous 10 years. The excellent state of the public finances at the various government levels also supports the prospect of increasing investment growth. However, severe capacity shortages in the construction industry are likely to mean that the high demand for investment will not quickly lead to an increase in construction activity. (Further articles: German housing market, Corporate bond boom in Germany, Result of the Saarland election) [more]

Are Europeans facing an identity crisis?

April 4, 2017

Region:

Economic and european policy

Topic:

Analyst:

Barbara Boettcher, Matthias Dincher

Chart in Focus

116

In the current debate about the future of the EU, politicians as well as the media are warning of a tendency by member states to shift their focus back to their own national interests and of a subsequent loss of significance of the EU. Are policymakers reacting to actual changes in the attitudes of EU citizens or is there an underlying perception issue here? [more]

Who is afraid of populists?

March 23, 2017

Region:

Brexit, Economic and european policy

Topic:

Analyst:

Barbara Boettcher, Patricia Wruuck

EU Monitor

117

With developments in the UK and the US, populism was a key theme in 2016. But does the perception of 2016 as “the year of the populists” really fit for Europe? A closer look suggests that while populism was an omnipresent theme in public discourse, support for populist parties in polls rather remained stable and elections did not translate into outright populist wins. The rise of populist parties has however been a multi-year trend. Populists can affect national politics in various ways. One possible effect is that forming a government (coalition) often gets more complicated and time-consuming and results in more fragile governments. Another is populists’ potential impact on policy discussions’ style and content. Pursuing policies with long-term benefits but which are often not instantly popular becomes more difficult ‒ both at the national and the European level. [more]

Growth and inflation leave ECB still unfazed

March 9, 2017

Region:

Economic and european policy, Macroeconomics, Sectors and resources

Topic:

Analyst:

Dieter Bräuninger, Eric Heymann, Oliver Rakau, Stefan Schneider

118

At face value the pick-up of GDP growth at the end of 2016 (Q4: +0.4% qoq vs. +0.1% prev.) seems to fit with improving sentiment. However, given its composition we would argue that underlying growth was weaker than the headline suggests. We stick to our below consensus GDP forecast for 2017 (1.1%) and only make cosmetic changes in the details. We are raising our inflation forecast slightly overall for 2017, from 1.6% to 1.7%, compared with only 0.5% in 2016. We still expect core inflation to be only slightly above 1% in 2017. If the signs of global price increases are confirmed, then we could in fact see a more pronounced increase in core inflation, particularly if rising prices translate into second-round effects when wage negotiations are conducted in 2018. (Further articles: German industry, German election campaign) [more]

Synthetic securitisation: Making a silent comeback

February 21, 2017

Region:

Banking and financial markets, Economic and european policy

Topic:

Analyst:

Orçun Kaya

EU Monitor

119

Securitisation markets have returned to policymakers’ attention recently, only this time as a hoped-for panacea to anaemic lending in Europe rather than a culprit for the financial crisis. To date, the focus is largely on true-sale securitisation. Yet synthetic securitisation has notable potential as well, especially for SME lending. Synthetic securitisation saw mixed trends in recent years. 1) Complex arbitrage deals have almost disappeared. 2) Balance sheet synthetic deals have surged to an issuance volume of EUR 94 bn in 2016. Transactions have become mostly private, yet are now much less complex and of robust asset quality. A firm inclusion of balance sheet deals in the evolving framework for simple, transparent and standardised (STS) securitisations would be sensible and could well contribute to a recovery in lending in Europe. [more]

False start for electric cars: Dilemma facing the automotive industry and the state

February 14, 2017

Region: