Handelsblatt: Germany`s slowdown is a wake-up call for policy
Mar 12, 2019
by Michael Heise
The German economy is in a downturn. Business expectations have deteriorated, particularly in manufacturing, but also in trade and other service segments, and even in construction, albeit to a lesser extent than in the industry. Following much lower than expected economic growth of just 1.4% in 2018, many forecasters predict growth of less then one percent in 2019. Are they exaggerating, or unduly skeptical?
Europe´s economies have lost further momentum at the beginning of 2019. Especially in Germany, industrial production is declining and companies do not expect a turnaround in the near future in view of the weak order intake. Forecasts for growth are being strongly revised downwards on all sides.
LSE Blog on Brexit: The economic impact of no deal
Feb 14, 2019
by Ana Boata and Michael Heise
Over the past two years, Brexit-related uncertainty has had a strong impact on the United Kingdom’s economy. In our analysis, the high level of uncertainty has shaved growth by about -0.3% of growth per year via a multitude of channels to the real economy.
The Globalist: 2019 holds opportunities on financial markets
Jan 7, 2019
by Michael Heise
2018 was not a good year for savers. Not only did the global equity markets end the year with losses, there was also little money to be made from investments in commodities, gold or high-yield government and corporate bonds.
Financial Times: EU needs a bigger toolbox to safeguard bond market
Dec 4, 2018
by Michael Heise
The eurozone remains vulnerable to financial stress. Time to take a fresh look at the idea of an European bond insurer, the so-called European Sovereign Insurance Mechanism (ESIM) which would partly guarantee sovereign bonds.
Handelsblatt: Target balances: Monetary policy is key
Aug 14, 2018
by Michael Heise
The EUR 900 bn of claims held by the Deutsche Bundesbank in the payments system of the European Currency Union – so-called target 2 claims – have made it to the headlines of newspapers. What is the story behind these numbers?
In its most recent publications, the International Monetary Fund has confirmed a concern that also worries many people in our country - the high level and the apparently relentless rise in debt in the global economy.
Münchner Merkur: The oil price indicates the risks
Apr 20, 2018
Interview with Michael Heise
Leading researchers believe that the economic upswing in Germany, which has continued for years, is increasing the risks. In an interview with Münchner Merkur, Chief Economist Michael Heise talks about the danger of a trade war, the constitution of Europe and the economic outlook.
Record employment, rising wages and a budget surplus show that Germany is in rude economic health. Yet the current boom conceals potential pitfalls. It distorts our view of the challenges that Germany must overcome to ensure that economic success continues into the future.
Since the 2008 financial crisis we have grown accustomed to subdued economic growth, low inflation and unconventional monetary policy. This “new normal” also feeds into expectations for the future which are traded on the financial markets. Rate hikes are not seen on the horizon for either Europe or Japan, in the US the rise in rates is expected to be much lower than Fed governors themselves are assuming.
FT: Bond markets need to wake up to global upswing
Sep 26, 2017
Since the financial crisis in 2008, the global economy has been characterised by slow growth, low inflation and extremely expansionary monetary policies. Markets seem to expect a continuation of this so-called "new normal”. They predict no interest rate rises in the foreseeable future from either the ECB or the Bank of Japan, and they expect the Fed funds rate to stay lower than indicated by the Fed`s governors.
Only a few years ago the eurozone seemed doomed to longterm stagnation and recurrent turmoil. Its politicians had let the crisis go to waste, critics claimed. Riven by internal imbalances, they added, the euro would ultimately be unsustainable unless its governance was fundamentally reformed, most notably by adding a joint fiscal policy.
Ten years have passed since the U.S. subprime crisis spilled over into Europe and beyond. Questions of financial resilience have been hotly debated on the Continent ever since. For many, the global financial crisis shattered the belief that highly developed financial markets tend to be robust and good for economic growth.
Since the beginning of the year the euro has risen sharply against the US dollar, but also against other key currencies in Europe and Asia. This has been driven by a return to stronger growth in the eurozone, which at around two percent in 2017 should pretty much match growth in the US. Particularly encouraging is the fact that all members of the single currency are now contributing to growth.
The latest economic data confirm that the eurozone economy is currently expanding at a rapid rate. With economic growth of almost two percent, around 2,000,000 new jobs and a lower - albeit admittedly still high - unemployment rate of 9.2 percent, 2017 looks set to be the eurozone's best year since the crisis.
The annual meetings of the heads of state and government of the G20 are an offshoot of the financial crisis. The first time they met in this constellation was in 2008 to discuss what global measures needed to be taken to stabilize the financial markets.
Börsen-Zeitung: No need to fear rising interest rates
May 30, 2017
The European Central Bank (ECB) is not budging from its ultra-loose monetary policy, despite acknowledging signs of the European economy's recovery, Allianz Chief Economist Michael Heise states in an op-ed for "Börsen-Zeitung". Risks certainly remain, he writes, but there is a vast gulf between maintaining a loose monetary policy and clinging to emergency measures as if Europe was still in the deepest of crises. Calculations show that the eurozone's private sector, and the private sectors of all eurozone countries, can withstand the extra pressure of increasing interest rates, Heise argues.
Angela Merkel and Emmanuel Macron are seeking radical reforms in Europe and are not ruling out changes to the EU treaties. Where might there be common ground? A sensible initiative would be to expand the European Stability Mechanism (ESM) into a European Monetary Fund. The fund would have two key functions.
Focus: How France and Germany could strengthen the EU
May 09, 2017
Hopes are high that the election of Emmanuel Macron as President of the Fifth French Republic will offer the European Union a helping hand out of the current crisis. The crisis is about more than just the United Kingdom's decision to leave the Union. Populist, euroskeptic parties and movements are gaining ground in all of the EU's member states and, in some cases, have already made inroads into government.
For three years now Germany has been recording stable growth of more than 1.5% and, despite initially downbeat forecasts, it looks set to maintain that pace in 2017 as well. In many respects the performance in recent years outstripped expectations.
Project Syndicate: What's Better Than a Border Adjutsment Tax?
Mar 08, 2017
One of US President Donald Trump’s most significant reform proposals is aimed at the American tax system. His administration wants not only to lower the overall tax burden, but also to “rebalance” the tax system to encourage domestic production and exports, possibly with a destination-based cash-flow tax we may call a border adjustment tax (BAT). Unfortunately, the risks of such a radical reform would most likely overwhelm any rewards.
Germany’s current-account surplus, which rose to €266 billion ($281.83 billion) last year, is under international scrutiny. The country once again faces a procedure to rebalance its accounts with the European Union, while the Trump administration complains loudly about the allegedly damaging effects of the German surplus.
Project Syndicate: Rewriting the Monetary-Policy Script
Mar 02, 2017
How long will major central banks blindly rely on rigid rules to control inflation and stimulate growth? Given the clear benefits of nimble monetary policy, central bankers need to open their eyes to the possibilities that flexibility affords.
It is becoming clearer by the day that the election of Donald Trump poses a major challenge for Europe, too. The new US administration backs the UK’s divorce from the EU, it prefers bilateral deals to multilateral trade agreements, and it accuses Germany of exploiting the EU as a vehicle for its own interests and of weakening the euro to gain an unfair competitive advantage. This charge against Germany is without any foundation.
Focus Online: May's Way: Feeding a dangerous illusion
Jan 17, 2017
Since a majority in the UK voted to leave the European Union, the UK government’s Brexit plans have remained vague. Although PM Theresa May declared shortly after the referendum that “Brexit means Brexit”, precise information on the envisaged new relationship between the UK and the European Union was hard to come by.
Handelsblatt: Allianz Chief Economist Heise: " Time to explore the driving forces behind populist separatist movements with a healthy dose of self-criticism"
Dec 28, 2016
Fear of globalization has propelled populist forces in Europe to the sort of popularity they would have previously considered the stuff of dreams. In this sort of climate, Allianz Chief Economist Heise calls upon policymakers to be more self-critical and more transparent in their political decisions.
The development of commodity prices, especially oil, is a major determinant of global growth and inflation. Since the spike in oil prices in 2012, and in non-energy commodities in 2011, the trend has been downward again: oil is 63 % below its peak and base metals by 45%, on average. This decline has been one of the most important drivers of low inflation in recent years.
The European Central Bank (ECB) will soon have to decide how to proceed with its bumper asset-purchasing program. It has already extended its purchases until March 2017 and upped the monthly volume to EUR 80bn. But what happens from next March? So far there have been no commitments in this regard nor is there any relevant experience in the eurozone.
Opinion on the German economy is deeply divided. Is it a drag on Europe due to Berlin’s resistance to greater spending in the name of budget balance, or is it an economic locomotive whose efficient industries support European growth? Leading economic-research institutes predict a golden autumn for the German economy and growth of 1.9% in 2016, while the International Monetary Fund forecasts 1.7% growth. But behind these agreeable growth numbers are blemishes that call for action.
Despite the deployment of negative interest rates and bond purchases many central banks are struggling to get inflation back up to the desired level of around 2%. As a result, a debate is raging across the globe about the direction of monetary policy. Many proposals should be shelved immediately – such as the call to finance government debt with the printing press (helicopter money) or the idea to double the inflation target from 2 to 4%. Such an act of desperation by the central bank would require yet more rash monetary action, damage its credibility and spawn even greater risks on the financial markets.
FT: Monetary policy lacks the muscle to boost growth
Aug 21, 2016
In Japan, Prime Minister Shinzo Abe announces yet another fiscal stimulus. In Europe, economists nod approvingly when the euro group waives fines on Spain — which, despite years of growth, still runs deficits way higher than the bloc’s rules allow. In the US, both presidential candidates promise more government spending.
So it is clear that attempts, however tentative, to cut spending and pay down debt have given way to renewed enthusiasm for policies such as these, that are intended to boost demand instead. This is dangerous. If governments resort to sky-high debt and negative interest rates, despite moderate growth and normalised capacity utilisation, in an upswing, what will they do if and when their economies weaken again?
Fears of a new banking crisis are haunting financial markets. The market value of Europe’s banks has plummeted by no less than EUR 250bn since the beginning of the year. Britain’s vote to leave the EU added further fuel to the fire, but earnings and the earnings outlook were already under pressure on several fronts: low capital market yields and the ECB’s penalty rates are squeezing profits in the traditional banking business, credit demand has been weak for years and regulation requires the reduction of risk and creates additional costs. Italian banks, at the epicenter of the crisis, are also dogged by a huge pile of non-performing loans, a legacy of a drawn-out recession.
CNBC Interview with Michael Heise: Central banks are essentially out of ammunition, with zero and negative interest rate policies spurring greater savings, not growth, said Michael Heise, chief economist at Allianz Group.
Moves by central banks from Japan to the euro zone to slash interest rates below zero have upended financial markets: investors are now paying some governments for the privilege of parking their funds while commercial lenders are mulling storing their cash in costly vaults instead of keeping them with central banks.
FAZ: The case for more flexible inflation targeting
Jun 06, 2016
The European Central Bank (ECB) aims to lift the increase in consumer prices in the eurozone to a figure below but close to 2%. The ECB itself refers not to an inflation target but to a reference value, but its policy is clearly geared to this target. If the inflation rate is too low, as in May at -0.1% on a year earlier, this justifies the continuation of ultra-loose monetary policy measures.
WSJ: Economic myths and reform realities for Germany
Jun 02, 2016
Germany’s economy is the envy of much of Europe. The country’s exports of goods make up 28% of the European Union’s total, it has high average living standards, and it currently boasts the eurozone’s lowest unemployment rate. According to Eurobarometer, 86% of Germans are upbeat about their national economy.
Die Welt: The German pension system: Better than its reputation
May 02, 2016
In the year before an election, it is not surprising to hear politicians talk about pension increases. What is remarkable is that, even in the political center ground, proposals are being bandied around that aim to unravel key elements of the pension reforms of the last two decades. The move towards a supplementary fully-funded pillar is being questioned. The state-sponsored Riester pension, so the argument goes, has not caught on widely enough to compensate for the gradual reduction in statutory pension entitlements. More and more pensioners would become dependent on welfare benefits. Therefore, the statutory pension must be raised again, not only for low-wage earners but for everybody.
Critics both at home and abroad have pounced on the German government’s plan to once again achieve a balanced budget (known here as the “black zero”) in 2016 as the main drag on growth. Germany could and should take on more debt, it is said, to improve its public infrastructure and education system, step up integration measures for refugees and cushion any potential impact on the German population.
German savers are cheesed off. They blame the ECB for the fact that for some time now around EUR 2 trillion stashed in bank deposits has generated practically no interest and in real terms is declining in value. There are mumblings of creeping expropriation.
CNBC: China hard landing way worse than gradually weaker yen
Mar 18, 2016
One of the main headaches that has plagued financial markets in recent months is the possibility of further devaluation of the Chinese yuan. It would make Chinese exports even more competitive and is therefore seen as a risk that reinforces deflationary pressures on world markets.
Last week, the European Central Bank announced its latest round of interest-rate cuts and a further expansion of its already sizable asset-purchase program, known as quantitative easing. This came barely three months after the ECB already had extended QE and cut its deposit rate in December.
FT: Don’t forget the upside of ‘lower for longer’ oil
Feb 17, 2016
For weeks, markets have been mirroring the oil price. Investors consider slumping oil prices as evidence of lacklustre global demand. They are not convinced lower energy costs can lift global demand, as they have done in the past. It is time to go back to fundamentals. Lower oil prices will deliver a boost to the global economy. This time is not different.
The Edge: China must manage credit bubble to avoid new crisis
Feb 12, 2016
Among the many uncertainties that have spooked stock markets in early 2016 – from power rivalries in the Middle East to Europe's unabated refugee crisis – the most unsettling has been the slowdown in emerging markets, as signaled by a collapsing oil price.
Mario Draghi, president of the European Central Bank, is standing up to his critics. In a recent speech he argued that ultralow interest rates and the ECB’s asset-purchase program, known as quantitative easing, didn’t unfairly punish savers as is often claimed. The truth is considerably more complicated, and the danger is that Europe’s savers will get caught in the crossfire of this economic argument.
FAZ: Financial markets 2016: Further sharp swings on the cards
Jan 11, 2016
On the stock exchanges the start to 2016 could hardly have been worse. The markets were rattled by the ongoing slide in oil prices to an 11-year low, growing tensions between Saudi Arabia and Iran and, above all, worries about the Chinese economy, underpinned by a sudden slide in the yen. All of this triggered sheer terror on the financial markets.
Allianz Chief Economist named Forecaster of the Year
Dec 16, 2015
The German national daily Süddeutsche Zeitung has named Michael Heise Forecaster of the Year for what is now the third time since 2002.
Among more than 50 institutions Allianz took first place in the annual Forecaster of the Year ranking. Besides the forecast for German economic growth, the individual GDP components including consumption, exports and investment were analyzed. Süddeutsche Zeitung emphasized the impartiality of Allianz´s economic forecasts.
Writing for The Journal, Michael Heise says the European Central Bank’s decision to extend its bond-buying program for six months increases the risks to the eurozone’s financial stability, since it eases constraints on debt-dependent governments and encourages banks to buy government bonds without too much concern for the risk of default. Mr. Heise argues that European Union governments should relieve the ECB of its responsibilities for regulating banks, and should also require banks to set aside capital against the risk of default by a eurozone government.
The financial markets are counting firmly on further monetary policy loosening by the ECB. Even before the meeting on 03 December, German government bonds yields and the euro have slipped sharply. That is probably to the ECB’s liking as it strives to boost inflation and get it back to the desired level of below but close to 2%. For some time now the ECB has been way off this mark.
Signs of a slowdown in China have been rattling stock markets of late. China is important, a hard landing of its economy, which absorbs some 10% of global merchandise imports, would hurt. But will the middle kingdom drag the global economy into recession? That seems unlikely. The US consumer is once again riding to the rescue.
FAZ: Why Germany is right to call for Greek reforms not debt cuts
Aug 17, 2015
Greece’s third bailout programme – which is currently making its way through European parliaments – could underpin a swift recovery in the country, provided, of course, political turbulences do not derail the programme once more. While the new bailout and reform package is being passed, the debate about the need for outright debt cuts is heating up. The German government is however refusing upfront debt restructuring in order to keep up the reform momentum in Greece. There are good reasons to stick to this stance.
By confronting Athens with the possibility of an exit from the currency, Berlin may finally have prompted overdue reforms.
Greece may have reached a preliminary settlement with its creditors, but peace and stability have not yet been restored in the eurozone. Recriminations are still flying between Greece and its creditors, and negotiations for a third bailout package will be fraught with difficulty.
“Germany should leave the euro.” It’s back again, the idea of splitting the eurozone into a north-euro and a south-euro. The discussion has been prompted by the possibility of a Greek exit. This is seen as breaking a taboo, instigating a debate as to whether bigger countries should leave the euro. However, such proposals are short-sighted, impractical and devoid of economic common sense.
The Globalist: Are markets judging the risk of Grexit correctly?
Jul 03, 2015
On Sunday, Greek voters will decide whether they want to accept the creditors’ terms for a bailout program or not. That is not an easy choice to make, not least because many Greeks might be confused about precisely what they will be voting on.
With the Greek government having broken off debt negotiations, the country faces impending insolvency in the days ahead. There is no money left to pay back the IMF loan to the tune of around EUR 1.6bn due on Tuesday. Even if nobody wants it, this could trigger a process that leads swiftly to Greece’s exit from the euro.
World Economic Forum: The real tragedy of the Greek debate
Jun 25, 2015
“Austerity is killing the Greek economy.” That is the conviction of many economists and politicians today. Of course, many mistakes were made in the course of the Greek crisis. Getting it right is always easier with the benefit of hindsight.
However, even with hindsight, it appears odd that some analysts and politicians seem to argue that Greece would be fine today if only it could spend a bit more money.
Financial Times: ECB must resist call to smooth bond moves
Jun 17, 2015
What would happen if the European System of Central Banks stopped financing the Greek economy? Although there are no indications in this regard at present, in view of the lack of progress of the negotiations with Greece closure of the ECB floodgates cannot be ruled out. This would have severe consequences, particularly for the banking system in Greece.
Handelsblatt Online: No one in Europe can want Grexit
Jun 03, 2015
The chorus is growing louder calling for the reform-shy Greeks to leave the eurozone. Grexit proponents argue that leaving the euro will not only return responsibility for economic and monetary policy to the Greeks themselves but, in the medium term, could also make the eurozone more stable: other countries would be compelled to show greater discipline to avoid the Greek fate. Such arguments often overlook the costs a Grexit would entail, above all for Greece, but also for the eurozone as a whole. In view of these risks, the political costs of a compromise that both the Athens government and the creditors would have to bear are manageable.
FAZ: Time for monetary policy to get back to normal
May 11, 2015
After years in the doldrums, the eurozone would appear to be back on track to achieve significant growth averaging 1.5% in 2015. With oil prices still relatively low compared with September of last year, and with the external value of the euro, a strong tailwind is sweeping across the entire single currency area - with the exception of Greece.
Although stability indicators have not returned to pre-crisis levels, it seems unlikely that a contained flare-up caused by Greece could plunge the entire currency union into economic turmoil, writes Michael Heise.
Greece has been offered the prospect of further financial aid from the EU in order to ease the country's social hardships. A gesture of solidarity. Now, however, the ball is back in the Greek government's court. To date, it has missed practically all of the targets that it had vowed to meet before the elections.
Focus Online: Ireland - Success built on resolute reforms
Mar 17, 2015
Ireland is back on track after a deep crisis. The savage cuts and reforms implemented since 2009 are working. The economy is enjoying an upswing, employment is rising and the country regained access to the capital markets some while back. All this despite the fact that Ireland was the country hardest hit by the banking crisis.
WSJ: Europe needs pro-growth policies, not stagnation sympathy
Mar 12, 2015
Almost seven years after the Lehman crash, output in the eurozone has yet to return to 2008 levels, 18 million people are looking for a job, and the outlook is mediocre. Policy makers are under intense pressure to revive the region’s economy, yet even diagnosing the problem remains controversial.
The situation in Greece is coming to a head. Financial markets have given a clear answer to the new government's plans to slow reforms and fiscal consolidation. Once again, Greece is cut off from the markets, share prices are tumbling and anxious citizens are withdrawing their money from Greek banks, which are entirely dependent on the European Central Bank. Tax payments and investment decisions are being postponed, and the slight improvement in consumer and business sentiment that started in 2014 is at risk of reversing. If Athens and its creditors do not find a solution soon, the painful adjustments that the Greek population has been through in recent years will have been in vain.
It is striking: Whereas the ECB’s recent decision to pump more liquidity into the markets is applauded and greeted with relief abroad, in Germany the critics prevail. Is it really wise to place such hopes in the ECB’s expansionary policy, as many Anglo-Saxon financial economists do? I think not. There are weighty arguments that have so far not been convincingly refuted by the acolytes of quantitative easing.
The clear election victory for the left-wing coalition Syriza has rekindled the debate about yet another debt haircut for Greece. Outside of Greece, too, many feel that a haircut is inevitable with the government debt ratio sitting at 176% of GDP. But these calls for a fresh haircut fail to take a whole number of aspects into consideration, or at least do not give them the importance they deserve.
The announced re-adjustment of the Chinese growth model from an export- and investment-driven to a more sustainable consumption-driven approach by the current political leadership under Xi Jinping is highly welcome. However, given the economic, environmental and demographic challenges ahead the most important questions are whether the planned reform measures are far-reaching enough and whether they will be implemented fast enough.
Speculation is rife that the European Central Bank might announce bold new monetary easing measures at its policy meeting this month, in particular a program to purchase eurozone sovereign bonds, or quantitative easing. The goal would be to expand the ECB’s balance sheet by €1 trillion ($1.21 trillion).
Yet anyone who thinks QE would be the policy that at last jolts the eurozone out of its torpor is in for disappointment. QE is unwarranted. It also would most likely be ineffective.
2014 was an annus horribilis for savers. Yields on German government bonds kept falling to new lows well below 1 percent and some banks started charging interest on deposits. And there is little sign of improvement on the horizon, on the contrary: If the European Central Bank (ECB) gets serious with its plan to launch quantitative easing, the investment conundrum is likely to get worse.
Versicherungswirtschaft: There is no reason to flood the economy with liquidity
FAZ: The drop in oil prices will fuel growth, not deflation
Dec 15, 2014
The slide in oil and other commodity prices is creating a new environment for the global economy and economic policy. Even if the OPEC oil cartel manages to stabilize prices soon, as is expected to be the case, a large number of oil-importing countries can already report substantial gains.
The fall in the prices of oil and various other commodities is set to push eurozone inflation further towards zero in coming months. This will create enormous political pressure on the European Central Bank (ECB) to reinforce its efforts to avoid deflationary territory.
The Russia-Ukraine conflict and its economic repercussions represent a considerable additional drag on the Russian economy. Even before the current crisis, structural problems had already contributed to an appreciable slowdown in growth.
FT: Irrational fear risks depriving Europe of the benefits of trade
Nov 11, 2014
The Transatlantic Trade and Investment Partnership now being hammered out between the US and the EU is shaping up to be one of the boldest free trade agreements in recent history. It is designed to remove remaining tariffs between the world’s two richest economic blocs and to lower barriers to trade and investment.
Given the eurozone’s mediocre growth prospects, one might expect the Europeans to embrace this opportunity. But opposition is growing.
The prices for crude oil and other commodities are tumbling. This is giving the world economy a welcome shot in the arm. The consumer notices it immediately at the gas pump and when filling his heating tank. But industry also benefits on the cost side, something it will sooner or later be able to pass on to its customers.
Focus-Online: France could trigger a renewed eurozone crisis
Oct 27, 2014
The moment of truth is nigh. On October 29, the European Commission, the body responsible for monitoring the fiscal rules, will make the last - and perhaps most important - move in its term of office when it announces its recommendations on the draft budgets of the EMU member states for 2015. If budgets deviate from the track set out in the EU's consolidation plans, then, based on the more stringent European fiscal rules passed in 2013, the Commission is authorized, if not indeed legally obliged, to reject the draft budgets of the member states in question and demand that they be revised.
The economic situation in the eurozone harbors many risks and in a number of ways resembles Japan in the 1990s: growth has been anemic for years, inflation has fallen to 0.4% and central bank interest rates are close to zero.
The numerous geopolitical crisis hotspots and the threat of a spiral of sanctions in the conflict with Russia have left their first scars on the German economy. Nevertheless, sentiment among the population remains upbeat and earnings expectations high.
Last week in this column Holger Schmieding came to the defense of the ECB which was, in his view, coming in for excessive criticism. In view of the average rate of inflation in the past, he argued, the ECB had done a good job overall, with price stability being in the interest of savers and pensioners in Germany in particular.
Wall Street Journal: Positive Vision for the Euro Zone
Jun 18, 2014
Investors worldwide have rediscovered euro-zone markets. Risk premiums on peripheral debt have tumbled, equity markets have shot up and the euro is strong. Now all eyes are on the ECB, on its measures to stem the alleged risk of deflation in the euro zone and on its efforts to clean up Europe's finance houses.
Two megatrends are shaping our economies and our future: climate change and urbanization. They are inextricably linked, and that link is infrastructure. Today, half of mankind lives in urban areas. By 2050, it will be three-quarters. Already, cities are responsible for 70% of global CO2 emissions. Unless cities make their infrastructure less carbon intensive, the battle against climate change will be lost.
The success of the German economy, thanks in large part to earlier structural reforms aimed at the labor market, pensions and public finances, served as an example and inspired similar efforts in other eurozone countries. However, Germany itself is now in the process of abandoning the path of reform and is busy unraveling decisions taken in the past, for instance with retirement at 63.
So far the financial markets have reacted calmly to events in Ukraine. They evidently expect to see a sensible political solution in which all sides should have a vital interest. A spiral of sanctions, on the other hand, would result in severe losses on the financial markets.
FT.com: Easing would be the wrong move for the ECB
Apr 03, 2014
Will the European Central Bank go down the route of quantitative easing? For some while now, Anglo-Saxon economists and commentators have been calling on the ECB to follow the Fed and the Bank of England and start pumping liquidity into the lackluster eurozone economy.
The euro is gradually becoming something of a riddle. Neither the crisis in Ukraine, which could harm the economy in Europe in particular, nor the spread of US Treasuries over German benchmark bonds, which at 1.1 percentage points has climbed to an eight-year high, has managed to dent the rise in the euro. And the single currency, in the eyes of many doomed one and a half years ago, is rising strongly on other markets as well. Against the Japanese yen, but also against emerging markets such as Brazil, Turkey, South Africa and Russia.
Wall Street Journal: The Unconvincing Case for Further ECB Loosening
Mar 04, 2014
After more than five years of major monetary accommodation, the European Central Bank (ECB) is still under pressure to loosen even further. On the surface the evidence seems convincing: Inflation is too low, credit is not flowing freely and surplus liquidity is declining. The ECB’s shrinking balance sheet is seen as a signal that its policy is too tight, supposedly one reason for the stubbornly high external value of the euro that might eventually jeopardize the fragile recovery.
At the beginning of the year eurozone inflation fell to 0.7%. That fueled the debate whether the European Central Bank should agree on further expansionary measures at its February meeting. That would not be advisable. Yes, inflation is currently below the ECB’s reference value of close to 2%, but this deviation is not critical.
When it comes to Greece’s economic outlook, optimists are pretty much a fringe group. Not surprisingly. For the past six years the Greek economy has been in a nosedive, since 2009 gross domestic product has shrunk by almost 25 percent and the unemployment rate has soared to just under 28% (among young people to almost 60%).
In the USA the monetary policy controls are set for a gradual return to normal. With the economy stabilizing, financial markets settled, and bank capitalization improved, the need for expansionary anti-crisis measures no longer exists. There are grounds enough for the normalization, since the long phase of ultra-low interest rates has rekindled the “hunt for return” and significantly raised market risk appetite for high-yielding bonds and equities. The longer the low-interest policy persists, the more financial markets get hooked and the graver the potential reactions when the wind inevitably changes.
Germany should not react indignantly to the criticism of our current account surplus currently emanating from Brussels and Washington. A reflex-like rebuff would not be advisable for several reasons. We Germans have helped work towards supplementing the European Stability and Growth Pact with a mechanism to monitor macroeconomic imbalances. It would be reckless to immediately discredit this new instrument.
Financial Times: ECB interest rate cut could kill the wrong guy
Nov 18, 2013
Eurozone inflation is falling and many observers are sounding the alarm. Is the region teetering on the brink of Japanese-style deflation and was the European Central Bank right to react with its surprise rate cut in early November, they ask?
The coalition negotiations are likely to be protracted and complex, but in all likelihood the coming legislative period will see a Grand Coalition under the clear leadership of CDU/CSU. Voters honored the fact that, despite the savage recession experienced by our European partners, the situation has improved in recent years: More jobs, falling unemployment, along with rising net earnings and purchasing power. Other countries take their hat off to the reforms enacted almost ten years ago in the Agenda 2010 and urge us to consume and invest more. And here at home, too, expectations are being raised.
The European Central Bank has not heeded calls to relax policy further. It has neither cut rates nor laid down precisely how long they will remain at record lows. It has also ignored repeated calls to conclude new long-term refinancing transactions to halt or slow down the decline in its balance sheet.
Focus Online: Is the boom in the emerging markets over?
Jul 26, 2013
For many years the emerging markets were seen as the epitome of high economic growth and hence as an important driver of the world economy. In recent months, however, there has been a flood of bad news: disappointing growth rates, mass demonstrations, political unrest and then the surge in capital outflows since late May.
Contrary to some forecasts made last fall, the euro has neither been scrapped nor have individual countries left it. The fear on the financial markets has dissipated and there are early signs that business and consumer expectations are improving.
Financial Times: Central banks will keep equities afloat
May 15, 2013
Four months ago, I argued in this column that financial markets were running ahead of a turn for the better. Today they are still in bullish mood. But they are not buoyed by encouraging data – which are still rare – but by the realisation that expansionary monetary policy is set to rule the roost for a while yet.
Bulls are ruling the roost on the financial markets. Investors are evidently confident that the euro debt crisis can gradually be overcome. Neither the crisis in Cyprus nor the problems in Italy or Portugal unsettled the markets, not a trace of the fear and horror seen last summer. Trust among banks is gradually returning.
"Money makes the world go round." If we ever needed anything to affirm this time-old saying, the crisis of the last few years certainly has. We have the resolute and coordinated action by the central banks to thank for the fact that the Lehman crisis did not plunge the global economy into depression. And it is certainly no exaggeration to say that the ECB deserves the lion’s share of the credit for the easing of the euro debt crisis.
The Greek debt crisis has shaken the very foundations of the European economy. No one would have thought just a few years ago that the imbalances in this relatively small economy would spell economic problems for almost all Europeans. No wonder that debates aboutGreeceare highly emotional. But emotions are not helpful here.
Financial Times: 'Grexit' fears are giving way to 'Crexit' optimism
Jan 15, 2013
For many, 2012 will be remembered for just three words: “whatever it takes”. The marked rebound on European financial markets, triggered by Mario Draghi’s famous statement at the end of July, has been impressive.
Back in the early summer, prior to the European Central Bank president’s tour de force, gloom lay over Europe as progress towards resolution of the debt crisis remained elusive and the fragmentation of the eurozone seemed a distinct possibility.
The retail sector has had a good Christmas this year. But the international financial markets have also been on a pre-Christmas spending spree. Investors are remarkably upbeat about 2013, and that just a few months in the wake of a crisis that stoked doubts whether the euro had a future at all.
From the very start the euro crisis has been a battle between two powerful and conflicting forces: on the one side the centrifugal forces of the financial markets, toying with nothing less than the break-up of the single currency, on the other political moves towards integration aimed at deepening monetary union. To date, it was difficult to pick a winner. Politics seemed to have little with which to combat the markets.
For more than two years now the euro has been exposed to conflicting forces. On the one hand, the centrifugal forces of the financial markets, toying with nothing less than the break-up of the currency union, on the other the rescue funds and integration efforts on the political front.Who would ultimately gain the upper hand was not always easy to gauge. Politics seemed to have little with which to combat the markets.
The ECB is caught in a dilemma. In the very countries in the eurozone that could do with an expansionary boost, interest rates are high and credit terms for businesses and banks particularly harsh. The reasons are obvious. Markets are dubious about a convincing political solution to the crisis and thus about the creditworthiness of whole sovereign states and the stability of the euro.What can the ECB do? Watch and wait until governments come up with an answer to their economic problems? Or actively help to dispel the doubts? The latter would certainly be welcome. But pivotal is the form ECB action takes.
Die Welt: A return to the D-mark would wreak havoc in Germany
Jul 30, 2012
For more than two years Europe has been grappling with the sovereign debt crisis – and there is no end in sight. Ever larger guarantees, gigantic liability sums and a host of uncertainties fuel doubt whether the German economy is strong enough to escape the vortex of the crisis. In this environment it is not surprising that many Germans would like to see a return to the D-mark. As understandable as this wish may be at first glance, illusions abound regarding the costs of reintroducing the D-mark.
At their meeting today the finance ministers of the Eurogroup will start fleshing out the decisions taken at the end-June summit. This is of key importance – without explicit policy foundations and efficient implementation plans, capital market investors will not get the additional clarity and security they need. Several items are likely to be on the agenda, or at least be discussed in the margins: for instance, the planned European growth pact, steps towards greater integration and, first and foremost, how to stabilize banks in Spain and Cyprus. The intention is to establish a European banking supervisor who can restructure banks directly with ESM funds and without preferred creditor status.
Despite the relief in markets after the EU summit, yields in Spain and Italy are still dangerously high. Current levels are neither compatible with long-term fiscal sustainability nor appropriate for economies teetering on the brink of deep recession. The chorus clamouring for bond purchases by the European Central Bank or through the now relaxed procedures of the European Stability Mechanism, the bailout fund, will remain loud. After all, buying long-term government bonds – quantitative easing in the jargon – is a proven monetary tool of the US and other central banks. What is good for the US surely can’t be bad for the eurozone, can it?
Spain has yielded to the pressure to seek refuge under the wing of the European rescue fund. Will a bailout stabilize the situation and improve the country’s economic outlook? The chances are good, but only if some of the other challenges facing the Spanish economy are also addressed.
Börse Online: Increased vigilance on the economic policy front
Jun 06, 2012
All efforts to overcome the eurozone debt crisis are currently being overshadowed by the uncertainty hanging over developments in Greece. If, following the elections on 17 June, the new government reneges on the reform and austerity measures agreed with the EU, the ECB and the IMF, a Greek exit from the eurozone is practically inevitable. This is making investors additionally wary of other EU countries, above all Spain. But there are in fact early signs that the tough medicine is starting to work.
The austerity policy being conducted by European governments has fallen into disrepute. Popular resistance threatens to bring Greece to its knees. But also in France and elsewhere there are calls for an end to austerity, with claims that current policy was leading ever deeper into a downward spiral. Politicians, but also a number of economists, are latching on to these popular arguments and arousing expectations that cannot be fulfilled.
The louder the financial markets applaud, the more people are now wondering whether the special measures taken by the ECB may not have been over the top. Its two long-term tenders amounting to more than EUR 1 trillion gross do more than merely bridge a liquidity gap.
Münchner Merkur: Return of the D-Mark – what would happen?
Jan 27, 2012
As Chief Economist at Allianz, Michael Heise knows from the inside what are ominously referred to as "the financial markets". The Munich insurance giant manages the gigantic sum of EUR 1.5 trillion for its clients. Allianz is one of the largest investors in the world. A conversation.
The European Central Bank is now playing a prominent role in the battle for the euro. It has switched into expansionary mode, trimming its key interest rate to 1%, expanding its “unconventional” measures via three-year refinancing tenders with full allocation, and by lowering collateral requirements for banks and halving the minimum reserve ratio. The ECB could hardly underscore more clearly its role as “lender of last resort”. At the first three-year tender – a second is planned for February – banks snapped up liquidity to the tune of around EUR 490bn. In this way, the ECB has thus set up a substantial rescue fund of its own.
Michael Heise is not expecting a global recession. In view of the enormous challenges, he calls for courageous action from policymakers. In 2011 the world economy had to cope with several simultaneous shocks. In the first half of the year soaring commodity prices eroded the purchasing power of both households and businesses and international supply chains were also disrupted by the natural and nuclear catastrophe in Japan, undermining global business activity. In the second half of the year the sovereign debt crisis in the eurozone escalated, triggering substantial turmoiol on the financial markets. The economy weakened further.
The latest rating verdicts by Standard & Poor’s give the impression that the efforts to save the euro have all been futile and that a further escalation of the crisis is on the cards in 2012. But this impression is wrong. Things are moving in the right direction. This has less to do with the new “fiscal pact”, set to be agreed at the next “crisis summit”. There is an acute risk that it will be watered down, not solely due to the legal difficulties, in the end adding little of substance to the existing rules and producing merely a “stability pact deluxe”. However, as the old stability pact showed, it is ultimately the political will, not the letter of the law, that decides whether stability pledges are adhered to.
The more investors shun the eurozone, the louder the calls for a “last resort”. For some, this should be the ECB, stepping up to buy unlimited government bonds from indebted euro member states, others favor a European debt agency that issues joint Eurobonds, enabling all euro countries to finance themselves on similar terms. Let us hope that we are spared such blind alleys to save the euro.
Fears of recession and uncertainty about the future of the euro have prompted steep slides on the bourses in recent months. However, the embattled stock markets have been able to make up some ground again of late. Is this a turnaround or just a bull trap?
Members of the German parliament have approved the expanded EFSF and – backed by the Constitutional Court – safeguarded their influence in the future. But once again events on the European debt crisis front have run ahead of the political decisions. Even before the new expanded facility is up and running, there are calls from many sides for it to be topped up or leveraged.
The decisions taken at the recent Euro Summit failed to assuage the markets. Italy and Spain have moved into the sights. In Germany, in particular, the “communitization of debt” is coming under fire. This would deal the final blow to public acceptance of the euro. Private sector involvement was too low and Greece by no means “rescued”.European monetary union teetering towards destruction?
Wall Street Journal: The Treasury-Bund Yield Puzzle
Jul 19, 2011
Low Treasury and Bund yields are continuing to defy market forecasts. With the renewed escalation of the euro-zone debt crisis in recent weeks, ten-year maturities have again fallen well below 3%. No visible effect of lower output gaps due to economic recovery, somewhat higher inflation and the surge in sovereign debt issuance. The combination of high public borrowing in the US, Japan and many European countries and extremely low interest rates is particularly perplexing. Whereas still robust business activity and high commodity prices could be interpreted by the bond markets as a temporary phenomenon, there is no getting around the reality of the sovereign debt problem. The US financial predicament has become so precarious that the rating agency Standard & Poor’s recently felt forced to downgrade its outlook for US debt. But markets shrugged that off.
So, what is the next act in the Greek tragedy? Debates on various forms of debt relief that could be used to help out the Greek government have been commanding center stage for months now, whereas talk of any revitalization of Greece's economy or of the economic prospects waiting in the wings has been much more muted. There is no denying that a lid has to be kept on Greece's interest and debt burden, and proposals in this respect abound. One feasible option would be to have an EU institution buy back Greek bonds. This would involve buying the bonds at the low below-par market price, reducing their nominal value and equipping them with a partial EFSF guarantee. Investors would then be left with less valuable, but more secure receivables.
Börse Online: The stock markets – a handy seismograph?
Jun 01, 2011
The stock markets have a reputation of reacting sensitively to economic and political risks. The early months of this year were not without swings on the stock market, but compared with previous years the ups and downs were limited. Correspondingly, volatility indices for the German (VDAX) and for the US stock market (VIX) were at a low level – mostly well be-low their historical average. This might make one think that 2011 has so far been a year with low risks and without surprises.
Rarely has there been such a sudden shift in perception as we have seen for the German economy. Only two or three years ago, Germany, outperformed by its neighbors, was dubbed the sick man of Europe, suffering from low investment, high unemployment levels, a rigid labor market and a declining population. Germany was considered to be stuck with a pathological recipe for low economic growth. Today, only a short time later, the economy is praised as highly competitive and capable of full employment.
Are there golden years ahead for the German economy, or are we being blinded by the impressive bounce-back from the deep recession of 2009? What justifies a positive long-term outlook? And what are the challenges that need to be overcome to ensure healthy long-term growth?
The turnaround in monetary policy looks to be getting closer. After the much debated exit from very expansionary monetary policy was put off in 2010 due to the eurozone sovereign debt crisis, the majority of forecasters now expect the ECB to nudge rates up at least slightly in the second half of 2011.
New year, same old challenges. The past few months have seen the debate on European government debt mutate into calls for a breakup of the euro zone. Many of the suggestions border on the surreal: Let’s reintroduce the German mark or at least kick out Greece, Ireland and maybe even Portugal and Spain. Or how about a northern and a southern euro? Fantasizing about the demise of the euro may garner applause in talk shows, but it is certainly not in the union’s interest, nor indeed in Germany’s. Germany benefits from political and economic integration in Europe, which is driven and symbolized by the euro. The disintegration of the single currency is not a solution. Governments are wisely focusing on better policies instead.
The second half of last year saw China's economic policy gradually start to exit from its very expansionary course. In 2011, it will also have to grapple with the challenge of withdrawing its expansive impetus without taking overly drastic action and choking the economy in the process. There are signs of overheating in various areas of the economy: in particular, vigorous banking lending and the relentlessly steep rise in real estate prices have been cause for concern for some time now. Recently, consumer price inflation has also accelerated, a potential source of social tension. Consumer prices were up by 5.1% year-on-year in November.
Stern Stewart Periodical: How the World Will Adopt its Balance
Dec 15, 2010
The global economy has recovered vigorously over the past year and a half. Global trade and industrial production are now sitting at roughly the same level as they were before the financial and economic crisis took hold. Industrial production has managed to shrug off a slump of 12%, while global trade has clambered back from a 21% nosedive. To date, the recovery has been very much a two-speed one. In emerging Asia and in parts of Latin America, economies have traced a more or less classic V-shaped path. By contrast, the large industrialized countries have so far experienced relatively weak recoveries, leaving the level of economic activity well below its previous trend and unemployment rates at an elevated level. Ultimately, the varying pace of the recovery reflects the degree to which the countries were hit by the financial crisis.
The decisions taken by the EU Council last week are aimed at improving the foundations for sustained growth in the EU and a crisis-proof euro. This entails not only ensuring sound state finances but also the elimination of macroeconomic imbalances which have built up over years, particularly on the periphery. Steep cost increases and excessive credit-fueled demand have eroded competitiveness in some countries and spawned yawning current account deficits.
In einem weitschweifenden Interview mit dem Magazin agora42 spricht Michael Heise über Finanzkrise, Staatschulden, die Zukunft der Europäischen Union, den deutschen Arbeitsmarkt, die Neuregulierung der Finanzmärkte und die Arbeit eines Prognostikers.
Concerns about the strength and sustainability of the global economic recovery have increased. Are we heading for a renewed downturn?
Fears of a setback in the Chinese economy in the wake of measures aimed at curbing buoyant activity, particularly in the real estate sector, seem overdone. In view of the successes notched up in past years, for instance during the Asian crisis, the ability of Chinese policymakers to achieve a soft landing should not be underestimated this time either. In the USA the sharp swings in some economic indicators certainly make an assessment of the underlying trend in activity difficult. A relapse of the US economy into recession after only a brief rebound would be a rare event, last seen in recent economic history only in the early 1980s in conjunction with a drastic tightening of monetary policy.
The financial world seems upside down. The spectre of inflation haunts countless television and radio debate shows, gold and other precious metals are the flavour of the moment. And yet, at the same time, yields on the major bond markets seem to be falling into an abyss, as if inflation had been nailed into its coffin for the foreseeable future. Yields on German government bonds have been flirting with all-time lows in early summer, and US long-term interest rates are still hovering at an exceptionally low level.
Should Germany reintroduce the DM or would it be better if Greece was to leave the eurozone or do we in fact need a Northern Union and a Southern Union, the first with a somewhat harder, the other with a somewhat softer euro? These are just some of the ideas currently being tossed around. Scant attention is given to the difficulties involved in replacing one currency with another, with new notes having to be printed, coins minted and all IT systems adapted. Above all, however, little importance is attached to the economic and political costs of dismantling the eurozone.
Other debt-ridden countries have also managed to dig themselves out of similar fiscal crises.
Conventional wisdom increasingly has it that the €110 billion European Union/IMF bailout for Greece will only delay a debt restructuring. The Greek economy, so the argument goes, could not possibly pull off the required austerity program. But back-of-the envelope calculations supposedly showing Greece's inevitable fiscal death are somewhat exaggerated. The slashing of the Greek budget deficit (13.6% of GDP last year) is actually proceeding faster than planned. The consolidation program agreed with the EU and the IMF projects for this year a deficit of 8.1%. In light of the progress in the first five months of this year, Greece might even manage to undershoot this target.
Michael Heise was the first to predict the end of the recession - and was right. In an interview with Focus Money, the chief economist at Allianz talks about the euro, rising shares and quieter times ahead.
The EU justifies the colossal stabilization mechanism for the euro with exceptional events beyond the control of the state (Article 122 of the Lisbon Treaty). The financial markets and the real economy had indeed become parallel worlds in recent weeks. Of late the news from the real economy has been overwhelmingly positive, even the “potential crisis candidates” Spain and Italy reported economic growth and Greece a marked drop in new borrowing. But the financial markets remained unimpressed, increasingly questioning the willingness to consolidate and the competitiveness of a number of EMU member states. When the interbank markets also got caught up in the maelstrom, a downward spiral loomed.
In response to a reader's letter arguing that no one can live beyond their means unpunished forever, Michael Heise responds that consolidation of public finances was purely a question of political will.
The single currency is on shaky ground due to the grisly Greek budget. But Michael Heise, chief economist of Allianz Group, does not believe its existence is under threat. The EUR 110bn aid package from the IMF and the EU will put an end to ruinous speculation. The German taxpayer will probably not have to cough up.
Börsenzeitung: Berlin muss wieder auf Strukturreformen setzen
May 05, 2010
With a deficit ratio brushing 5% this year, Germany will record its highest deficit since the mid-1970s (1975: -5.6% of GDP). Moreover, in the two-year period from 2008 to 2010 the debt ratio is set to rise by 10 percentage points to around 76%. Given this debt mountain, the government faces a Herculean task.
Wall Street Journal: Preventing the Next Euro-Zone Debt Crisis
Apr 01, 2010
Without a powerful "Finance Commissioner," it will be hard to restore confidence in the single currency.
The euro-zone agreement on potential support for Greece and other indebted member states last week ended a period of rising uncertainty about the euro’s fate and Europe’s coherence. The question now is whether the last-resort rescue plan will actually reassure markets that a default in the single currency zone is not on the cards.
The discussion about the pro and contra of a European Monetary Fund is to be welcomed. The Fund itself is problematic. It is to be equipped with tax funds of the euro member states and be available for countries which have got into difficulty due to soaring debt. But this would create false incentives and is not compatible with the spirit of the European treaties. Fiscal delinquency would be sanctified retroactively. Europe has no lack of institutions for crisis management – that already works well. Europe needs to do more for crisis prevention and prophylactic fiscal discipline. We need more effective monitoring of countries which disregard the EU’s fiscal rules. The Fund is meant to do this. But it is not really needed for this purpose.
Börse-Online: Unruhige Zeiten für die Rentenmärkte
Mar 04, 2010
The private sector debt crisis has in some countries mutated into a government debt crisis. The high risk premiums on securities of peripheral euro nations, for instance, are signaling a substantial risk of sovereign default. Could this be a harbinger of a general shift in sentiment on the bond markets?
Wirtschaftsdienst Zeitgespräch: In the aftermath of the crisis: effective regulations on the financial market?
Feb 01, 2010
The financial crisis marks a watershed for the financial markets. The doctrine of “light-touch” regulation – and the “efficient markets” theory that underpins it – has failed. There is no question that an effective, global regulatory framework is an absolute must, if for no other reason than because it is in the interests of political hygiene: the state cannot hand out billions to prop up the markets and the banking sector and then simply sit back and assume that market discipline will make a better job of things in the future, because, after all, we’re all supposed to learn from our mistakes. Submission to more stringent regulations is the price that the financial industry will have to pay for reaching out to the generous helping hand that has been extended to it. If these regulations translate into wise changes to the regulatory framework, then they are in the interests of the financial industry, signaling the sector’s willingness to change and thus playing a key role in helping to win back customer confidence.
Following the steep nosedive at the beginning of 2009, the German economy initially emerged impressively from the crisis, only to falter again in the final quarter. Germany has not yet become the economic locomotive of Europe, a role it could play given its relatively better situation on the debt, housing and labor market front. It is striking that, despite the much chided private and public sector debt, the US economy is currently expanding much faster than Germany or Europe.
The prospect of rising unemployment insurance contributions has added fresh nourishment to the rejection of plans to cut taxes in 2011. The collective reflex in the media and in the public domain: how can taxes can be lowered when social security contributions are set to rise at the same time – is that not left pocket, right pocket? Shouldn’t taxes be used to plug the holes in welfare coffers and prevent a rise in contributions?
Asia Insurance Review: Emerging Asia once again global growth driver in 2010
Jan 06, 2010
What was true for 2009 also holds true for 2010: Asia has weathered the crisis better than many other regions. We expect the economic upswing in the Asian economies to continue in the year 2010, supported by an ongoing stimulus from the fiscal and monetary policy side as well as by a clear recovery in world trade.
Börse Online: Unwägbarkeiten beim Dollar nehmen zu
Okt 07, 2009
The global economy has emerged from recession. Amid expectations of the improvement in the economy, markets for risk assets have seen prices rise sharply since the spring. By contrast, the big loser has been the dollar. Since early March it has tumbled almost 15 percent against the euro.
The Wall Street Journal: Germany's Return To Reform Politics
Sep 30, 2009
Germany’s electorate has spared the nation the specter of stalemate that loomed over the political horizon for many weeks. The center-right coalition of Christian Democrats and Free Democrats has a clear mandate and, after four years of a grand coalition, politics will return to the more normal cut-and-thrust between the two major ideological camps.
Wirtschaftswoche: Was jetzt nach der Wahl passieren muss
Sep 28, 2009
With the election now over, Germany faces a mountain of problems. What should the new government do to rein in debt, equip welfare systems for the future and unleash growth potential? Wirtschaftswoiche asked four top economists to debate the best way ahead for economic policy.
The ECB says the time is not yet ripe for a monetary policy U-turn, for an “exit” from its anti-crisis policy. The economy is running in low gear, with idle capacities and enormous pressure on prices. Credit demand is declining and the banking crisis is not yet definitively over. In such a situation, disconnecting the monetary drip prematurely could cause a relapse, as happened in the Great Depression eight decades ago.
Frankfurter Allgemeine Zeitung: „Keine Sorge um den Standort"
Jul 13, 2009
The German financial system has always been in the firing line. Particularly abroad, it was seen by many as lagging hopelessly behind. The financial crisis, which blew some major German banks out of the water, is seen as confirmation. And there is now talk at home about the purported failure of the banks and “unprecedented” measures are being heralded.
The global economy appears to be clawing its way out of the fiercest recession in decades. Numerous green shoots of recovery suggest that the second quarter of this year will mark the turn of the cycle. The forces behind this turnaround have been evident for some time: Fiscal injections, aggressive monetary policies, huge bank rescue packages and, on top of all that, an unprecedented slide in commodity prices which has pushed inflation down and boosted real private household incomes in many countries.
The free fall in the economy appears to have been halted. The indicators are starting to turn, optimism is returning. This is nowhere more evident than on the stock markets. In view of the massive monetary and fiscal policy boost, this is not surprising. But self-satisfaction would be misguided. There is a host of risks which could wipe out the tender green shoots of recovery. The greatest risk is still the condition of the financial sector.
Börse Online: Neue Perspektiven an den Finanzmärkten
Apr 30, 2009
The stock markets currently have a spring in their step. How encouraging! But do the current market gains really herald an improved economic outlook or are we merely seeing a short-lived interim rally? One swallow does not make a summer.
Financial Times Deutschland: "Warnhinweise an alle Schwarzseher"
Apr 28, 2009
Nobody can accuse us Germans of failing to focus on problems. This is evident right now: we are being bombarded with grave announcements of an ever steeper slide in the economy. Economists are outbidding each other with downbeat forecasts. As far as the economy was concerned the year was dried and dusted, and we should count ourselves lucky if things pick up again in 2010. Businesses and private households needed to be informed as it had not yet fully dawned on them that a crisis was in full swing.
Wall Street Journal: „Europe can only lead by example“
Mar 24, 2009
Im Zuge der Finanzkrise erlebt Europa, und der Rest der Welt, die schärfste Rezession seit 1929. Das Hauptaugenmerk zur Zeit ist verständlicherweise auf kurzfristiges Krisenmanagement. Im Moment besteht die Hauptaufgabe darin, die richtige Balance zwischen dem Staat und den Märkten zu finden, um Stabilität zu gewährleisten und langfristig die Kräfte des Marktes zu stärken.
Frankfurter Allgemeine Zeitung: „Licht am Ende des Tunnels“
Mar 9, 2009
Die Konjunkturdaten der vergangenen Wochen zeichnen ein ziemlich verheerendes Bild. Viele sehen sich an das Schreckenszenario der Großen Depression erinnert. In seiner Schnelligkeit übertrifft der Absturz der Konjunktur selbst die schärfsten Rezessionen früherer Jahre. Konsequente Krisenbekämpfung der Politik und weitere Korrekturen im Finanzsektor sind das Gebot der Stunde. Wenn es gelingt, die Finanzkrise endlich einzudämmen, wird sich die Weltwirtschaft deutlich erholen können.
Hamburger Abendblatt: „Drei Gründe, warum sich die Wirtschaft schnell erholt“
Feb 10, 2009
In an interview with Hamburger Abendblatt Michael Heise cites three factors arguing in favor of an early recovery in the economy: low interest rates, the stimulus packages around the globe and the fall in energy and commodity prices.
Frankfurter Allgemeine Zeitung: „Die Konjunkturwende ist möglich“
Jan 05, 2009
We head into 2009 in the middle of a recession. Tension is high. On the one hand there is hope that 2009 will herald a turnaround, the new US president will have an impact and the financial crisis will at last be overcome, on the other we encounter fears that we are in for the worst recession in the post-war period which drives up unemployment and further exacerbates the problems in the financial sector.
Bild: „0 % Zinsen – Kann ich mir Geld bald gratis leihen?“
Dez 18, 2008
In a dramatic move the US Federal Reserve has lowered interest rates down to zero percent. But low interest rates alone are not enough to get the economy moving again. In Germany consumer loans will not be available free of charge, even if the ECB lowers its key rate further. This is likely to be the case in January, with a reduction from the present 2.5 % to 1.75 %.
The Wall Street Journal: „Deleveraging must continue“
Nov 20, 2008
In the current crisis government rescue packages and central bank rate cuts are helpful but they cannot replace the need for deleveraging in the banking system. At least parts of the banking sector had decoupled from the real economy. In a sense, this process will result in the focus of business shifting away from ever more sophisticated ways of shunting risk around the financial cosmos, and toward the more traditional banking practice of acquiring, holding and monitoring risks. If the adjustment proceeds quickly, the flow of credit from the financial sector to the real economy will not be impeded for long. However, apart from this deleveraging process within the financial sector, there remains another question: Are not sectors of the real economy sorely in need of some balance-sheet repair? In countries that have experienced a credit boom, such as the U.S., the U.K., Spain and many eastern European countries, both adjustments are necessary--and painful. The longer the reduction of debt is postponed the more brutal the final reckoning. Trying to grow out of the problems – or, put differently, growing into the high debt levels – would mean repeating the “Japanese problem” of the 1990s.
Tagesanzeiger: „Eine heftige Rezession, aber auch eine kurze Rezession“
Nov 07, 2008
Following the abrupt slide in October, things have let up a bit, helped by the central banks and the government rescue packages. The banks now need to reduce risks swiftly and trim their balance sheets. Despite the global interest rate cuts we will see a sharp but short recession, but we are not drifting into a long, drawn-out slump. The decline in commodity prices and very low interest rates are grounds for optimism. The US economy will emerge from its trough in the 2nd quarter 2009.
Frankfurter Allgemeine Zeitung: „Lichter am Horizont“
Nov 03, 2008
Interest rate cuts or an expansive fiscal policy will not suffice to trigger a turnaround – not least the Japanese experience demonstrated that. New confidence will come from the reduction of risks in the financial sector and an enhanced capitalization of banks. Good progress has been made on this front in recent weeks, but consolidation is also needed in the corporate and private household sectors. Once initial successes become evident in the form of a return to improved capital ratios, tension will ease. And should we then also see falling energy and commodity prices massively ease pressure on the cost side, the outlook is by no means as bleak as the current crisis mood would suggest.
Börsen Zeitung: „Von der Moral und Macht der freien Märkte“
Oct 28, 2008
The financial market crisis will resurrect the question as to the legitimacy and integrity of market-regulated systems. It is undisputed that the market economy also experiences crisis periods – no less than eight in the last 35 years. The current crisis will eventually be overcome – giving rise to a new regulatory framework and sweeping changes in market structures.
Financial Times Deutschland: „Es ist eine Abwärtsspirale“
Oct 27, 2008
Bank lending in Germany is set to fall. Since early October it has become even more difficult for the banks to refinance themselves on the short-term credit markets. On the stock markets we are currently seeing a self-reinforcing downward spiral. Stabilizing elements, such as the drop in commodity prices and low interest rates, are simply being ignored.
CH-D Wirtschaft: „Verbesserung der internationalen Wettbewerbsfähigkeit Deutschlands“
Oct 15, 2008
As a business location Germany has made up appreciable ground in recent years. Among Germany‘s strengths is doubtless its backbone of Mittelstand (SME) companies and a high degree of innovative power. There is room for improvement in investment activity and in education policy. Its excellent infrastructure and central position within the European Union are also a boon. Despite the current downturn the German economy is in solid shape, the economic policy backdrop has improved further of late.
Handels Zeitung: „Die Talsohle ist nicht mehr fern“
Sep 24, 2008
Uncertainty on the financial markets is on the wane, the nadir of the financial crisis will be reached in the next few months. Despite the current turmoil a credit crunch is not on the cards. In the USA the government’s rescue package is casting a pall, but the US economy is tougher than one thinks and should record growth of 1.9 % in 2009. The world economy should see growth of 2.7 % next year: soaring commodity prices have eased, central banks will keep interest rates low, corporate profits are healthy.
The current economic situation in Germany should not be labeled as a recession – capacity utilization is still above-average – but rather as a weakening or a slowdown. Nor is it likely that we are heading for a recession: prices for oil, industrial raw materials and food have eased, the euro’s stellar rise against the dollar looks to be over. In addition, wages have not risen so strongly, enabling central banks to keep interest rates low. Moreover, global economic growth these days stems from several regions.
The positive trend in the German economy seen since early 2005 ground to a halt in mid-2008. The cause was the financial market crisis coupled with a surge in many commodity and food prices. To this extent the falling oil price could provide a decisive boost for the re-acceleration of the German economy. Private consumption should benefit from falling oil prices, while investment activity will probably not tail off sharply in the months ahead. The prospect of a continuation of the upswing hinges not least on economic policy. A reduction in taxes and levies, particularly for low and middle earners, could give a boost to private consumption. It is also essential that the reform momentum on the labor market seen in recent years is maintained.
The steep rise in energy and food prices has eaten into purchasing power. For this reason, consumption in Germany failed to spark this year. The Swiss economy can also expect to see growth rates slip. However, thanks to the drop in commodity prices, we can expect to see the economic picture in the euro area pick up again towards the end of the year. The correction on the stock markets opens up opportunities in the medium term.