Politics

Renewed defeat in Istanbul increases the pressure on Erdogan

The new mayor of Istanbul is Ekrem Imamoglu – and this time for real. The candidate he ran against, Binali Yildirim of the AKP, has already conceded defeat, and President Erdogan has congratulated Imamoglu on his success. For the AKP, and above all for the head of state, the loss of the economic powerhouse to the opposition is a problem. No less a person than Erdogan himself is rumoured to have said: “Whoever wins Istanbul, wins Turkey.” Imamoglu is undoubtedly still well away from achieving that, but having lost the largest city in the country, the AKP has also lost a major source of money with which to supply favourites and others upon which favour is to be bestowed with lucrative jobs and contracts. In addition to this, the AKP now no longer holds the reins in any of the three largest cities in the country. Even if many pundits…

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…

France: Protests failing to undermine the appetite for reform

One thing that really can be said of France’s President Emmanuel Macron: he is not allowing the street protests to deter him from implementing the announced reforms. With the popularity of the so-called yellow vests increasingly waning, he now faces the risk of disputes with the trade unions. Following the labour market reform introduced in 2017 with simplified dismissal and hiring rules, employers and trade unions were recently presented with details of the planned reform of the unemployment insurance system. The key points of the reform include longer periods of employment before unemployment insurance benefits can be granted and a capping of benefits for higher earners. Previously, unemployment insurance could be claimed if within a period of 28 months applicants had worked in at least 4 of those months. From now on, applicants must have been in employment for at least 6 months. Moreover, in future benefits will be made…

China selling its Treasuries: a warning to Trump?

There has long been speculation over whether China might use its huge portfolio of US Treasuries as a weapon in the (trade) war against the US. The latest data from the US Treasury Department is likely to add fuel to these speculations: Having already sold US Treasuries to the tune of USD 20 billion in March, China went on to sell further T bonds worth USD 10 billion in April. The volume of US Treasuries sold by China in the last twelve months thus amounts to an impressive USD 86 billion. As the chart below shows, this is not the first time China’s portfolio of Treasury bonds has fallen, and the current episode is also unlikely to break any new records. The Chinese had already disposed of US Treasuries in 2016, with the sales volume adding up to an even more impressive 150 billion US dollars. However, there is one…

US central bank faces a two-way dilemma

The US Federal Reserve will advise on further interest rate policy this week. It was still almost a foregone conclusion until recently that interest rates would continue to rise in the US. However, the trade conflict and the resultant growing concerns about growth have raised expectations that the Fed will lower the fed funds rate by up to three times in the course of the year. Some investors are not ruling out an interest rate cut even this week. The US central bank is now up against a dilemma once again. It is not in its interest to nip every key rate cut fantasy in the bud. This could lead to high levels of volatility on financial markets and conjure up far-reaching recessionary concerns. However, the Fed will not want to fuel market participants’ expectations of a quick and sharp reduction in key interest rates either. Consequently, it needs to…

The euro is not – and never will be – a lead currency

The US dollar is the world’s leading currency, a fact that serves to cement the economic dominance of the US. The US administration is increasingly exploiting this dominance. One reason why the US sanctions against Iran are so successful is the ability of the US to control international payments processing via Swift. This means that the sanctions policy adopted by the United States can also be imposed on companies from countries with no real interest in enacting this type of policy, such as Europe in the case of the Iran sanctions. For sovereignty over payment transactions entitles the US government not only to control access to the important US market but also to assert the US dollar as internationally recognized means of payment. There are of course good reasons for the dominance of the US dollar. The US is the world’s largest economy and the most important export market for…

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