Euro zone

ifo Business Climate: The third rise in a row

The mood in German companies improved further in July. This is shown by the latest survey of the ifo Institute. The business climate index has risen from 86.3 to 90.5 points in the last four weeks. This is the third time in a row that this important pulse monitor for the German economy has accelerated. According to the common rule of thumb, this is considered a reliable indicator of a turning point. It can thus be assumed with some certainty that the German economy is now in a recovery phase again after the deep corona-induced slump in spring. In fact, the business expectations of companies for the coming months are more positive than they have been for around 1 1/2 years. This also shows that the German economy is convinced that the worst of the corona crisis has been overcome and that there will be a strong recovery in the…

Surged purchasing managers‘ indices in July – Is the crisis already over?

European purchasing managers have become much more confident according to the IHS Markit survey in July. The Composite Purchasing Managers‘ Index, a comprehensive barometer of sentiment on the situation among service providers and in the manufacturing sector, rose 6.3 points to 54.8 points in July. This is the highest value since mid-2018, and is based on a significant improvement in sentiment in both areas of the private sector. At first glance, one might almost think that the Corona crisis is over after a short but deep cut. But when looking more closely at the measurement figure, for example for the services sector, which achieved the largest plus in the monthly survey, one should not forget how it is collected. It is based solely on one key question, namely: „Is the level of business activity in your company higher, equal or lower than a month ago? In view of the advanced…

More power for the headquarters

The new EU aid fund – or thMore power for the headquarterse new Recovery and Resilience Facility (RRF), as it was called in the summit’s final document – is to amount to 750 billion euros as proposed by the EU Commission. Over the next three years, the fund will provide EUR 390 billion in grants and EUR 360 billion in loans to member states. To finance this programme, the EU Commission will be authorised to issue its own bonds on behalf of the EU and place them on the capital market. This gives the EU the opportunity for the first time to refinance itself by raising its own loans on the capital market. The debt service for the new EU bonds will then be handled by the EU budget, which in future will also have its own tax revenues: From 2021 a tax on disposable plastics is to be introduced,…

EU agrees on Corona aid package

It was another tough wrestling match in Brussels. The positions were very far apart at the beginning of the negotiations and the climate in the negotiating room must have been rather undercooled. But at least there was the Franco-German proposal for a „reconstruction fund“ of 750 billion euros, which was intended to benefit the states particularly hard hit by the Corona crisis. Particularly controversial was the allocation of the sum to grants or loans. Originally, 500 billion euros were to be disbursed as non-repayable grants and 250 billion euros as loans. The breakdown has now changed to 390 billion euros in grants and 360 billion euros in loans, after the „Thrifty 4“ (the Netherlands, Austria, Denmark and Sweden) insisted on a reduction in the grant amount. There are also conditions for the use of the aid payments, which are to be based on the economic policy recommendations of the EU…

No surprises before the summer break

In line with our expectations, the European monetary authorities did not decide on any changes to the monetary policy stance at their Council meeting today. The ECB will continue to buy bonds under the Pandemic Emergency Purchase Programme (PEPP) until at least the end of June 2021. Even though individual guardians of the currency expressed their unease about the flexibility of the PEPP in advance of the ECB’s deliberations, no adjustments to the framework conditions were anticipated. Securities purchases under the Asset Purchase Programme (APP) will also continue as planned. In view of the uncertainty surrounding the economic outlook, the currency watchdogs believe that a comprehensive monetary policy stimulus is still required. In the course of the press conference, Ms. Lagarde stressed that the central bank is likely to exhaust the announced PEPP purchase volume of EUR 1,350 billion. In doing so, the ECB chief is sending a „dovish“ signal…

Rising debt is not currently the problem, but it may become one

The corona crisis is increasingly proving to be a severe test for the debt sustainability of the EMU states. The financial and sovereign financial crisis of the euro states is now being followed by the third crisis in only about twelve years, which is having a noticeable impact on the debt ratios of the states. In the case of Italy, the debt ratio is expected to rise to 160% of GDP by the end of 2020. In order to stabilise the debt-to-GDP ratio in the long term, the primary balance is the central factor influencing the debt ratio from the perspective of the states. Our results show that the primary balance that Italy needs to achieve in order to stabilise the debt-to-GDP ratio over the longer term rises to 3% of GDP as a result of the crisis. In recent years, Italy has consistently achieved significantly lower primary surpluses, which…

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