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Crisis on the Italian banking market and the consequences for Europe

Since the Brexit decision, the Italian banking sector has come under enormous pressure once again. In particular the share prices of domestic banks have recorded palpable losses, but risk premiums on bank bonds have also widened. However, multiple reports of the great efforts being undertaken by the Italian government to inject state aid into the domestic banking sector have caused some of the spreads to narrow again. The Italian government’s first request for a bail-in (i.e. capital aid without forcing bond creditors to participate in losses) was rejected by the EU Commission with the expected reference to the ban on state aid. The Italian government quickly denied any accusations that it would support its crisis-stricken banks with public funds without the approval of the EU Commission. Nor have the other rumours and press reports that the banking market might be salvaged through state or private finance been backed by further…

Labour costs are rising in Germany – good for consumption, but bad for competitiveness

The statutory minimum wage, that has been in force for one and a half years, is to be raised for the first time in early 2017. The so-called minimum wage commission proposes an increase from currently EUR 8.50 to EUR 8.84 per hour. This corresponds to a four percent rise compared with the gain in average wages and salaries in Germany since December 2014 of 3.2 percent. The commission has thus proposed a slightly disproporationate increase but has not heeded some of the demands made in recent weeks to „take a bigger slice of the cake“ and raise the minimum wage to a round figure of EUR 10. And rightly so, because a disproportionately high increase would have significantly heightened the pressure at the lower end of the wage scale once again. Given the still insufficient time for reliable empirical analyses since the introduction of the minimum wage, we still…

The knee-jerk reflex of the financial market

The familiar knee-jerk reflex is quite simple: if the patellar ligament is tapped lightly, the lower leg lifts. The international central banks are behaving in much the same way at present. Something extraordinary happens, the current case being Brexit, and after a short period, there are vociferous promises by central banks to further ease monetary conditions in the near future. This was the case yesterday when the Bank of England announced that it would cut interest rates in the near future as a precautionary measure and the ECB announced that it would shortly amend the terms of its public sector purchase programme. In future the purchase key could be based on market capitalisation and not on countries’ shareholdings in the ECB. This could imply that the level of a country’s debts determine the share of the bonds to be purchased under the ECB’s purchase Programme. The capital market also reacted…

EU referendum unleashes political chaos

The Britons have taken a historic decision: with a majority of 52% they voted to exit the EU. Even though the margin was more pronounced than expected, a deep split has been revealed in the country after the referendum. While Brexit supporters such as Nigel Farage, Daniel Hannan and Boris Johnson see themselves as victors, David Cameron accepted the consequences and announced his resignation. A new party leader should now be elected at the Conservative Party Conference at the start of October. There is no question that this candidate will be elected from the ranks of the so-called Brexiteers, so that conflict with the predominantly pro-EU parliament is inevitable. It is completely unclear at the moment as to what will happen next. Although David Cameron’s phased resignation has bought the Britons some time, we are still no closer to finding a solution to the actual problem. The leave supporters have…

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