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The brexite won’t let us go

The brexite that kept us so busy last year is still not off the table. Talks on a free trade agreement (FTA) between the UK and the EU have stalled. Today, a summit meeting is expected to bring new momentum to the talks. According to its own statements, however, the British government under Prime Minister Johnson would also accept a no-deal brexit if the talks did not go according to its ideas. London also strictly rejects an extension of the current transition phase. It is a déjà vu: once again, Great Britain is heading for an unregulated withdrawal. The effects of a „No FTA“ Brexit on the British economy would be similarly serious as those that the so-called No-Deal-Brexit would have had last year: trade between the two economic areas would take place from one day to the next only on a WTO basis, customs duties and border controls would…

The Merkel-Macron Plan: The first step on the way to a transfer union

  There is movement in the discussion about an EU reconstruction fund. Based on the Franco-German proposal, the fund is to have a volume of 500 billion euros, be managed by the EU and be launched in a few months‘ time. Brussels would also decide alone on how the money is to be used, but this would be based on how badly the recipient states are affected by the crisis. Contrary to what was initially demanded by Berlin, the fund would provide grants rather than loans and would be conceptually similar to the EU’s Cohesion Fund. This also explains why it should be smaller than previously discussed. To finance the money, the EU would first issue bonds on the financial market. This would require the approval of the national parliaments. However, the EU’s debt is to be gradually reduced over the next few years through higher financial contributions to the…

Central banks have initial successes

  The crisis measures of the central banks have taken effect in the last two days. The ECB in particular has made a significant contribution to calming the situation in the euro zone with its announcements. The ECB will expand its bond purchase programme by the end of the year to include PEPP with a volume of EUR 750 billion and will also extend this to include Greek bonds. Greece’s rating is currently below investment grade. Under the previous rules, Hellas bonds could not be purchased by the ECB. With this decision the ECB has given the signal that it will continue to buy Italian bonds even if the country’s rating is downgraded. Behind this decision is the political will to ensure that the euro zone is not divided by this crisis. Structural integrity should therefore be maintained at all costs. This should initially be possible. However, with the problems…

FOMC: Fed ensures liquidity supply

The clear message from the US Federal Reserve last night is that the current interest rate level is appropriate. The current monetary policy stance should strengthen economic growth and support a return to the 2% inflation target. Against this background, the Fed’s Monetary Policy Committee left the key rate corridor unchanged at 1.5% to 1.75% at its meeting yesterday. The key rate decision was taken unanimously. This had been unanimously expected by market participants. Despite the unchanged level of key rates, other important monetary policy decisions were taken. For example, the interest rate for excess reserves (Interest on Excess Reserves IOER) was raised by five basis points as expected. This adjustment is primarily to be understood as a technical measure to ensure that the IOER and the effective Fed funds rate are in the middle of the targeted interest rate corridor. It was also announced that repo transactions would continue…

Great Britain chooses – burdens remain

Britain faces a choice of direction today. Both in the Brexit question and in economic policy, the ideas of the most important parties diverge widely. The Conservatives under Prime Minister Boris Johnson want to lead Great Britain at the beginning of next year to relatively drastic conditions from the EU. Instead, Jeremy Corbyn’s Labour Party is promoting a softer Brexit with a second referendum. At the same time, however, the party also offers the prospect of radical economic upheavals, including the nationalisation of entire industrial sectors. Smaller parties such as the Liberal Democrats (LibDems) or the Scottish Nationalists (SNP) reject the Brexit altogether. Current polls put the Conservatives in the lead, but the absolute majority is becoming a nail-biter. If it is achieved, Boris Johnson will be able to „govern through“ it, and the UK’s exit from the EU at the end of January 2020 is unlikely to be hampered…

South Africa in the economic crisis

Economic growth in South Africa was only 0.8% last year, well below original expectations. In the first quarter of 2019 there was even a new setback in growth, the overall economy fell by 0.8% compared with the final quarter of 2018, and the unemployment rate reached almost 28%, its highest level since summer 2017. President Cyril Ramaphosa, a reform-minded and balancing president, has not yet managed to lead his country out of the economic mode of crisis. South Africa’s economic misery is largely due to structural causes that can hardly be resolved in the short term. These include the excessive number of unproductive state-owned companies, including Eskom, which recently hit the headlines due to rotating power cuts. But serious shortcomings in the education system, too many regulations that hamper growth and a frightening level of corruption also hamper employment growth and economic progress. Despite all the grievances, Ramaphosa managed to…

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