Germany

German housing market: Rent cap will exacerbate the tense situation

The Berlin Senate made up of a red-red-green coalition has scored a direct hit with its rent cap agreed in a benchmark paper on Tuesday of this week. For days, the press has been reporting about how hard-hit tenants are to be provided with affordable apartments. This has gone down well with the general public. A recent survey showed 60% of respondents to be in favour of introducing a rent cap. Given this success, it comes as no surprise to learn that demands are already being made for a nationwide rent cap. The fact that the legal foundations for such a project are doubtful and that it is unsuitable for solving the tense situation on housing markets is evidently of secondary importance. It is therefore questionable whether the Berlin Senate has legislative competence for the tenancy law regulated in the German Civil Code (BGB). And the problems on the housing…

German Mittelstand not entirely immune to global economic slowdown

As we can see from the results of the new SME study carried out by DZ BANK and BVR, sentiment among the small and medium-sized enterprises (SMEs) in Germany deteriorated again slightly this spring. In fact, the assessment of the current business situation yielded the second consecutive decline, with the balance of positive and negative answers falling from 79.3 points in our autumn survey to 73.9 points. In a globalised world, even the SMEs that are focused on their domestic market are unable to entirely avoid the impact of increased international risks. Nonetheless, the current business situation is still at a good level in a long-term comparison and the SMEs do not expect the weak phase to persist. Following a marked decline last autumn, they are already somewhat more optimistic again about the future, with the balance of business expectations rising from 21.1 to 24.1 points. It has become increasingly…

Pressure on global politics and the global economy increases

US President Trump continues to escalate things further, most recently directing his ire against Mexico. As is so often the case, while the reasons he gave may seem plausible, higher customs tariffs are not about to solve the migration problem. Moreover, the announcement of higher customs may need to be seen in connection with ever louder calls for impeachment proceedings against him to commence. We can hardly expect that, going forward, the many disputes are likely to all be solved. And even if they were, the global economy is already being damaged. In Euroland, the Italian government now refuses to hold back. Following his success in the European elections, Minister of the Interior Salvini is now quite openly flaunting the fiscal rules and demanding a debt-financed growth programme for Italy. This way he may kick the populist door in the Eurozone wide open and further weaken the principle of stability….

Visibly slower increase in inflation in the euro zone

Consumer price inflation decelerated noticeably in the euro zone in May. The inflation rate – based on the harmonized consumer price index HICP – fell from 1.7% in April to 1.2% in May according to the Eurostat flash estimate. This is largely attributable to a lower increase in prices for services. During the Easter holidays last month, the price of services climbed more than usual. In May, this price increase was corrected again. As the inflation rate for other goods, food and energy was only moderate, the inflation rate as a whole has declined. At the country level, all economies publishing flash estimates also reported lower consumer price increases. The corrections were particularly substantial in Germany and Spain where the annual rate fell by 0.8 and 0.7 percentage points respectively. In Germany, the inflation rate for May was 1.3% and in Spain it was only 0.9%. How will things develop…

Countercyclical capital buffer with limited impact

For years, the ECB has been keeping interest rates at very low levels, driving up equity and real estate markets in the process. Now the countercyclical capital buffer is being introduced to rectify this situation. The objective is to build up reserves in the banking system at times of economic expansion in a preemptive measure to cover losses. Once the cyclical systemic risks have been reduced, the buffer can be lowered again. In this way, the real economy is to be ensured a steady provision of credit, especially during periods of stress. According to a recommendation of the German Financial Stability Committee (Ausschuss für Finanzmarktstabilität, or AFS), the domestic countercyclical capital buffer is to be activated from the third quarter of 2019 and set at 0.25%. From this date, banks in Germany will have twelve months in which to meet the additional capital requirements. The AFS justifies the decision by…

Is Germany becoming a high-tax country for companies?

Much has happened in recent years and decades in the area of company taxation. Within the group of OECD countries, corporation tax rates have been significantly reduced since 2000. The unweighted average of corporate tax rates of the countries in question fell from 32.2 to 23.5% between 2000 and 2019. And the trend towards lower corporate tax rates is evidently far from over. Some countries, such as the US, have only recently implemented major tax reforms, while others are in the process of doing so or planning to do so in the near future. With globalization striding ahead over the past two decades, the mobility of production factors has risen noticeably. The pressure on countries to make local conditions more attractive is therefore intensifying all the more. This includes the area of corporate taxation. An international tax cutting contest has well and truly started. The recent tax reforms in many…

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