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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…

Bank of Japan Tankan index hits three-year low

The Bank of Japan’s quarterly sentiment index has weakened again recently, falling by 5 points for large and export-orientated industrial companies in the second quarter, and reaching a three-year low of only +7 points. This important index, with readings ranging from -100 to +100, is now close to showing a balance between optimistic and pessimistic responses from the companies surveyed. Conversely, assessments from large companies in the services sector which are geared more to the domestic market have improved slightly recently, up from 21 to 23 points. The Tankan has recently slipped down from 12 to 10 points for all companies (all sectors and size categories). Sentiment at large Japanese manufacturing companies consequently showed an above-average deterioration in the second quarter. Concerns about the current and future business climate are also understandable given the uncertainty and the real impact of the US/China trade dispute. Some good news did nevertheless emerge…

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