Politics

US politics curb economic growth significantly

uncertain economic policy environment. Even if a federal budget compromise that President Trump is also able to sign can be hammered out in the next three weeks, we still expect dampening effects on the US economy. Day-to-day politics will no doubt be dominated by staggering from one deadline to the next until November 2020. Consumers and businesses alike will be somewhat more cautious in the future. We have, therefore, lowered our growth forecast and now expect economic growth of 2.1% in 2919 and of 1.6% in 2020. Overall, the growth dynamic will be somewhat reduced, but still solid. Given the somewhat weaker outlook for the US economy, we have also lowered our inflation forecast. Ultimately, wage growth will probably accelerate less than initially assumed despite the good employment situation. After an average inflation rate of just 2% this year we expect 2.3% next year. In his first two years in…

EU budget 2021-2027: More burdens instead of innovations

The EU Commission wants the new EU budget to be passed rapidly after the European elections in May. It is seeking to have the budget for the years 2021 to 2027 approved by the European Parliament and the Council before the end of 2019. But we fear that little use is being made of the opportunity to modernize the budget and that approval will take longer than hoped – not least because of the many bones of contention and the increasing euro-scepticism in some countries. EU citizens will suffer as a result: the budget holds scant prospects of innovations in store for them, but it will bring heavier burdens. The budget is supposed to become more modern and meet the major political challenges of the next few years. In addition, larger investments are planned in sectors that are important for the future. However, the EU is looking very lethargic in…

Brexit meanders towards extension

Yesterday’s parliamentary vote had been awaited with bated breath. Fourteen amendments were tabled, seven of which were selected by the Speaker of the House. But in the end only two managed to attract a majority: Caroline Spelman’s amendment, which was aimed at preventing a no-deal Brexit, and Graham Brady’s “Backstop Amendment.” Amendments are to be regarded primarily as an indication of Parliament’s wishes, but in this case its wishes were almost diametrically opposed. The majority in Parliament clearly seeks to avoid a no-deal Brexit, but vehemently rejects the agreement that has already been negotiated. The commitment to avoid a No-Deal Brexit is undoubtedly a sign of progress. However, the “backstop” that has been negotiated undoubtedly constitutes the biggest obstacle in the way of an agreement. The first thing that Theresa May will now do is to reopen the negotiations on the “backstop” – or at least try to do so….

Returning to monetary policy normality is a challenge

he European monetary authorities have used conventional as well as unconventional monetary policy measures to counter the knock-on effects of the financial and debt crisis in recent years. However, it is now becoming increasingly clear that the monetary policy toolbox is virtually empty – as evidenced by the fact that the European monetary authorities are being increasingly forceful in urging various Eurozone countries to implement reforms. Should the clouds on the economic horizon darken further over coming weeks and months, the monetary authorities are at first likely to adjust their current forward guidance for key interest rates. If inflation remains at a low level, the monetary authorities are likely to abandon the idea of a hike in key interest rates. To clarify this position, the ECB could once again highlight in its monetary policy statement that key rates will probably remain at their present levels for an extended period of…

Europe in a dilemma: national interest outweighs community spirit

The Eurozone has failed to solve its structural problems since the sovereign debt crisis; nor does the Union seem prepared for any economic downturn. It would make total economic and political sense for core as well as periphery countries to put their own short-term interests to one side a little, in order to improve the economic performance of the Eurozone as a whole. Solutions could include a European monetary fund, provided it was able to provide financial assistance and was also given the power to actively influence the fiscal policy of a member state and impose sanctions if necessary. A functioning Union also requires the loss of a bit of freedom. A more expansionary fiscal stance would be very sensible in the event of deteriorating economic conditions. This might include investment incentives for companies, bringing forward public spending, and tax breaks for private households. However, this would need to be…

US: no end to the political nail-biter

After the Republicans lost their majority in the House of Representatives in November, we believed a period of consensus-seeking between the two party alliances to be the most likely scenario. This had been the most common political route out of the impasse in the case of split majorities in the past few decades. In this case, this was not what happened. Instead Trump maintained an icy resistance. Some federal authorities were forced to shut down for 34 days, as the US President insisted on being given USD 5.7bn to build a wall along the border to Mexico. Not only does the House of Representatives, which is meanwhile dominated by the Democrats, refuses to fund the wall. Numerous Republicans reject it too. It took until the end of last week for the President to capitulate and approve the stop-gap spending bill presented by Congress. Key reasons for this no doubt include…

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