A perpetual motion machine does not exist

The financial markets appear to be increasingly decoupling from the real economy. This impression can be increasingly gained. All asset classes are benefiting from low interest rates worldwide, very low interest rate expectations and, at the same time, an almost inexhaustible supply of liquidity. In addition, there is a never-ending series of government aid packages. All of this seems to create an environment in which, even in the worst economic crisis in more than 50 years, hope outweighs all current fears and concerns. The result is high valuations in all asset classes; in particular, government and corporate bonds have in some cases strayed far from their fundamentals, as central banks are also buying directly. These observations are not new. Since the financial market crisis, this development can be observed in the financial markets with varying intensity. In the past, the high valuations were at no time a significant risk factor….

The EU Reconstruction Fund: Towards a Transfer Union

There is movement in the discussion about an EU reconstruction fund. Following the Franco-German proposal and the counter-draft of the „Thrifty Four“ last week, the EU Commission has now also presented its concept. As expected, the Brussels plan shows clear parallels to the German-French model. However, the total volume of the fund is to be even greater, at 750 billion euros. Analogous to the Merkel-Macron Plan, Brussels also provides for grants totalling 500 billion euros. In addition, however, the fund is also to grant loans amounting to 250 billion euros. The Commission’s plan even gives details of how much each country would benefit from the fund. As expected, Italy, which was particularly hard hit by the Corona crisis, is to be the main beneficiary. It would receive 81 billion euros in grants and 90 billion euros in loans. By comparison, Germany would receive 28 billion euros in grants and no…

Debt is not the solution for everything

The world is going through the deepest crisis in post-war history. But the dormer idea that all problems can be solved with money or with debts has apparently taken root. In many cases, there seems to be hardly any inhibitions and no more thinking. All problems should be solved with debt-financed spending. This conviction is also reflected in Merkel and Macron’s new plan. The two heads of government want to give the EU Commission the opportunity to borrow 500 billion euros on the financial market. The bonds will be guaranteed by the EU member states and are to be repaid from EU budget funds. This is a further step towards a common financial policy. Against the background of the ruling of the Federal Constitutional Court, this is certainly a logical step. But in Germany in particular, such political decisions should be well explained and people should be taken on board….

There is no need to be afraid of inflation

Fear and concern about inflation is unfounded. The long-term consequences of central bank policy are probably to be seen in other areas, but they can have just as many consequences as permanently high inflation. Once again, the fear of inflation is on the rise. This time, as repeatedly in recent years, the triggers are the central banks‘ major rescue programmes. All over the world, interest rates were cut, liquidity was pumped into the markets and assets were bought. In the Corona crisis, these programs in the larger countries generally far exceeded the trillion mark. An end is not in sight. The enormous commitment of central banks is not a new phenomenon. Already after the financial and debt crisis, central banks saved the global economy from greater damage with programmes of this kind. Even then, there were always phases with greater concern about a rapid rise in inflation, but inflation did…

The fat years are over

  Since 2014, the German finance ministers have always been able to report budget surpluses. Over the past six years, the total federal budget has accumulated more than 200 billion euros, which could be used to pay off debts or flowed into the reserves for overcoming the refugee crisis. But this is now over, as the current tax estimate makes clear at the latest. This year alone, the national budget will be short of around 100 billion euros in tax revenues compared with the forecasts from the pre-Corona period. At the same time, there will be high additional expenditures for crisis management. So in 2020 Germany will have high deficits at all levels of government and will probably have to incur significantly more new debt in just one year than it was able to save up in the six years before. The new debts are unavoidable and no attempt should…

Europe needs Europe

In the midst of the Corona crisis, two very special anniversaries offer us the opportunity, despite current events, to take a step back from everyday life and to remember: the liberation of Europe from Nazi terror on 8 May 1945 and the birth of Europe as we know it, only five years later. When Chancellor Merkel talks about the fact that we are currently facing the greatest challenges since the end of the Second World War, this not only says a lot about the current situation. It also shows that we can look back on a period of peace that has now lasted 75 years and from which all Europeans have benefited greatly. Since the Schuman Declaration of 9 May 1950, a mere idea has grown into an alliance that has given the continent not only peace but also prosperity and social security. Not only have former enemies become friends,…

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