Euro zone

Spain: Reform policies pay off – they must only be continued

After eight months and two rounds of general elections, Spain’s parliamentarians have still not succeeded in establishing a new government. Rajoy, the prime minister to date, is therefore only a caretaker prime minister. What is problematic is that the cabinet is not permitted to submit new bills to parliament and therefore simply administers the status quo. Despite the economic successes, the popularity of Rajoy and his conservative party has fallen. Corruption scandals have weakened confidence in the established parties and courageous structural reforms have led to painful cuts for the population. The reforms to date no doubt played a key role in Spain managing to come out of recession and now being in a strong economic upturn. Core elements of the economic reform programme were reforms to labour law to enable greater flexibility. Protection against termination was eased and collective bargaining agreements made more flexible. There have also been extensive…

Ireland unlikely to modify its business model

The Irish government’s decision to do without the handsome windfall payment in the form of back taxes to the tune of up to EUR 19 billion from the US corporation Apple has triggered political controversies in Ireland and further afield. Given that this windfall payment would be of a huge magnitude by Ireland’s standards, the country is passing up an opportunity to reduce its debt level very considerably at one fell swoop as well as to engineer an immediate improvement in its rating and debt sustainability. There are probably both political and economic motives behind the Irish government’s refusal to succumb to temptation. For one thing, the administration fears that the ruling could call the country’s fiscal sovereignty into question and entail an attack on tax rates which are low by EMU standards. For another thing, the pro-business government is concerned about the Emerald Isle’s economic model. Over the past…

Target2 balances are drifting apart once more due to the ECB’s bond purchase programme

In recent months, the Target2 balances of the different Eurozone countries have been drifting apart continuously. The Target2 amounts due to Germany, Luxembourg, Finland and the Netherlands now total around EUR 950bn. In contrast, the central banks of the European periphery, in particular, have accumulated substantial liabilities to the Eurosystem. However, this is by no means a new phenomenon. A comparable trend was apparent in the period from July 2011 to August 2012 when capital fled the EMU periphery. The factor driving this development has, however, changed over time. The assumption is that the present rise in Target2 balances is closely associated with the ECB’s bond purchase programme, which has been in place since March last year. Accordingly, the rise in the positive Target2 balances in Germany, Finland, Luxembourg and the Netherlands is comparatively closely linked to the rise in the ECB’s bond portfolio. Both indirect and direct effects on…

The end of globalisation

Global economic growth has been disappointing for some years now – and it is still flagging. This year the global growth rate will probably be no more than 2.7 per cent. This is the lowest rate since crisis year 2009. One of the most important reasons for the sluggish pace of growth is to be found in the companies’ reluctance to invest, especially in the industrialised countries. In the United States companies have already been investing less in new plant and equipment for as long as three quarters. In other important national economies companies have also been conspicuously reluctant to invest for some time now. Often cited as possible reasons for this slack investment activity are pessimistic turnover forecasts, restrictive lending by banks or the heightened global uncertainty. In our view, there is yet one more reason for the disappointing investment activity: the trend towards globalisation in the world economy,…

British economy heading straight for a recession

In the final analysis, this was to be expected: but the impression gained from the latest survey indicators on sentiment in the British economy directly after the Brexit vote is overwhelming. The industrial climate, measured in terms of the Purchasing Managers‘ Index for the manufacturing sector, plummeted in July to the lowest level in three years, with the almost four index-point drop the strongest even in five years. At just around 48 points, the indicator now lies way below the 50 point threshold considered to be the starting point for growth. The purchasing managers‘ assessment even deteriorated noticeably during the survey period. Compared with a preliminary estimate, which was only based on 85 percent of the survey results, this final indicator reading has been revised downwards again by nearly a full percentage point. The surveyed companies unanimously cite the now widespread uncertainty over the economic consequences of the referendum as…

1 50 51 52 53