Tuesday, May 25, 2010

Van Iron Lady naar Frau Smeedijzer

Europa begrijpt Duitsland niet meer. Slag om slinger van mening veranderen, deels met een complete ommezwaai tot gevolg, en onbegrijpelijke soloacties hebben de Duitse regering en bondskanselier van de Europese kernploeg naar de B-ploeg verstoten. Voor de toekomst van Europa is het cruciaal dat Merkel haar politieke strategie bijstelt. Minder draaien en keren en solo slim spelen, meer teamwork en duidelijkheid verschaffen.

Sinds het begin van de crisis stonden de Europese partners steeds vaker het hoofd te schudden bij de slingerkoers van Angela Merkel. Eerst regeerde ze samen met de sociaaldemocratische partij, nu met de liberale. De wisselvallige houding, en de overmatige aandacht voor de opiniepeilingen van de dag: het loopt als een rode draad door het crisismanagement van de Duitse regering. Voor de rest van Europa lijkt het als of Merkel wankelmoedig, aarzelend en zonder concept is.

Dat is niet zo. Het Duitse economische beleid kan duidelijk worden verklaard. Merkel volgt sinds het begin van de crisis een tweepijlerstrategie. De eerste pijler kan het best worden beschreven als 'wat goed is voor Duitsland, moet ook goed zijn voor Europa'. De tweede pijler is de laatste opiniepeiling en de mening van de meerderheid van het Duitse volk.

De eerste pijler van Merkels strategie was vooral in de eerste fase van de financiële en economische crisis opvallend. Heel vaak was het nee zeggen tegen Europa, maar 'ja' aan Duitsland. Een Europese oplossing om spaargelden te garanderen? Nein, maar iets later stond Merkel voor de camera met de belofte aan de Duitse bevolking dat alle spaargelden veilig waren. Een Europees stimuleringspakket? Nein, maar iets later had Duitsland zijn eigen pakket, het grootste van alle Europese landen. En later zelfs nog een tweede pakket. De Europese dimensie van de problemen werd ontkend of onderschat. Het Duitse belang stond voorop.

De voormalige Duitse bondskanselier Gerhard Schröder zei ooit dat een Duitse politicus zich slechts van drie dingen iets moet aantrekken: 'Bild, BamS und Glotze' (Bild, het zusterblad Bild am Sonntag en de buis). De tweede pijler van Merkels economisch beleid gaat duidelijk terug op haar voorganger Schröder. In de laatste fase van de crisis, de schuldencrisis, werd de publieke opinie bepalend voor het Duitse beleid. In Duitsland was en is een brede meerderheid tegen financiële steun aan andere Europese landen. De Duitsers hebben destijds hun geliefde D-Mark ingeleverd in de veronderstelling en met de belofte dat de euro een stabiele munt zou zijn. Alle andere landen moesten de Duitse stabiliteitscultuur volgen. Het oplossen van de Griekse problemen met Duits belastinggeld ligt meer dan gevoelig.

Een blik in de Duitse Bild-Zeitung zegt alles. Hier zijn alle Grieken bedriegers, sjoemelaars en uitvreters. De bondskanselier wekt de schijn van instemming door deze geluiden niet tegen te spreken. Dat verklaart waarom Merkel steun voor Griekenland zo lang mogelijk probeerde uit te stellen.

De felle kritiek op Merkels beleid ten aanzien van de Griekse crisis is begrijpelijk, maar de resultaten spreken eigenlijk voor Merkel. De Duitse maatregelen ter stimulering van de economie, denk maar aan de fameuze slooppremie of gesubsidieerd deeltijds werk, waren niet alleen toonaangevend voor Europa. Ze waren ook succesvol. Alleen de Duitse exportsector werd door de recessie getroffen. De binnenlandse vraag bleef enigszins overeind en de werkloosheid steeg nauwelijks. De Duitse economie kwam als een van de eersten uit de recessie en zal de komende jaren waarschijnlijk de groeimotor van Europa zijn. Het is ook de vraag of de Griekse regering bereid was geweest tot het doorvoeren van forse bezuinigingen als Merkel vroeger had ingestemd met financiële steun. De tactiek om de Grieken zo lang aan het lijntje te houden was zo slecht niet.

Sinds het reddingspakket voor Griekenland is het evenwel duidelijk dat de problemen van de Eurozone niet meer op te lossen zijn met Merkels tweepijler-strategie. Angela Merkel heeft het nog niet gemerkt. De nieuwste Duitse egotrip van afgelopen week om de financiële markten in hun eentje aan banden te leggen was het laatste hoogtepunt van de tweepijler- strategie. De publieke opinie en de politieke oppositie vragen om de financiële sector in de hoek te zetten, de Duitse regering luistert gedwee. Natuurlijk is een verbod op speculatieve transacties geen slechte zaak, maar niet als het slechts door één land wordt geïntroduceerd.

In plaats van stabiliteit heeft de Duitse regering nu voor nieuwe verwarring gezorgd. Als Merkel de markten echt had willen stabiliseren, had zij alle aarzelingen achter zich gelaten en luid en duidelijk haar engagement voor het Europese plan van 750 miljard euro bevestigd. Uitgerekend dit plan heeft het potentieel om de huidige crisis op te lossen, maar alleen als het ook echt wordt doorgevoerd. Het is de hoogste tijd voor alle landen om hun verplichtingen nu na te komen.

De crisis is inmiddels in een nieuwe fase beland. Na de bankencrisis, de recessie en de Griekse crisis, is er nu de schuldencrisis en zelfs een existentiële crisis. De toekomst van de Eurozone staat op het spel. Nationale egotrips helpen nu niet meer. Angela Merkel moet een nieuwe pijler aan haar strategie toevoegen: rechtlijnigheid in verbondenheid.

Dit stuk verscheen eerder in het Belgische dagblad "De Morgen"

Thursday, May 20, 2010

Lonely fighter or maverick?

The German ban of naked short-selling has caused new uncertainty in financial markets. It also met a lack of understanding from other Eurozone countries. The German solo attempt is a risky game.

What is good for Germany, is good for Europe. Since the start of the financial crisis, this very often seems to have been the guiding theme of the German government. However, remember the u-turns on bank guarantee schemes, economic stimulus packages and the approach to the Greek crisis? Initially against a coordinated European action, the German government often changed its mind, implemented national policies and confronted the rest of the Eurozone with a fait accompli. In the end, this strategy still led to good results but also to a lack of understanding from other Eurozone countries. Tuesday night’s decision to ban naked short selling seems to fit into this German strategy.

The German Ministry of Finance banned naked short-selling of sovereign bonds, CDS related to risks outside the Eurozone and the stocks of ten German financials. German Chancellor Merkel announced that the ban would remain in place until a common European solution has been found.

It still remains unclear what triggered this overnight decision. Did the German government have insider information which made the immediate ban indispensable? Was the German government dissatisfied with the European approach to tackle speculation and did it want to push other countries to do the same by presenting an accomplished fact? Or was it simply driven by domestic politics and the fading public support for the government? While all three explanations are plausible, the decision to ban naked short selling was in our view mainly driven by domestic politics. This view is supported by the fact that on Tuesday the German government also agreed on an international tax on financial markets. Details of this tax are still unknown and the ultimate success of such an international financial tax is also uncertain. However, it illustrates the government’s willingness to fight speculation, a policy topic which should find positive feed-back in the German public. Moreover, it undermines the German opposition’s attempts to gain political ground by proposing a financial transaction tax.

According to German Chancellor Merkel and Finance Minister Schäuble, the decision was needed to further stabilise financial markets. Recent measures had not been sufficient. Yesterday’s reactions in financial markets and comments from other Eurozone countries, however, showed that this goal had not been achieved. Markets dropped significantly and several Eurozone countries reacted with incomprehension. On substance, the German decision was welcomed. However, the timing and the solo attempt was less appreciated. Up to now, the German decision has left more uncertainties than clear facts. While the German government had somewhat slowed down the finalising of the €440bn Special Purpose Vehicle during the Eurogroup meeting on Monday, it now jumped the gun on financial market regulation. A clear line now looks different.

In the first stages of the current crisis, the Eurozone was affected by a global crisis. In these first stages, Germany’s more domestically oriented approach might not have been to the liking of everyone but it still delivered reasonable results. At the current juncture, however, the Eurozone is in the middle of a homemade sovereign crisis. In this situation, a coordinated European approach with a clear and strong commitment of all countries seems to be the only way out. In this context, the German solo attempt is a risky game as it creates new uncertainty in a just stabilising situation. To further stabilise financial markets, a clear line and commitment on the Special Purpose Vehicle and strong proposals for a new fiscal framework in the Eurozone might have been a better option than banning naked short selling.

Tuesday, May 18, 2010

Crisis drop

The German ZEW index dropped in May on the back of recent market turmoil. The ZEW index which measures investors’ confidence now stands at 45.8, from 53 in April; still clearly above its historical average. At the same time, investors have again become more positive on the current economic situation. The current assessment component increased for the twelfth consecutive month to its highest level since September 2008.

Today’s ZEW index illustrates the uncertainty the current sovereign debt crisis and latest market turmoil have created. The harsh winter, volcanic ashes, the Greek crisis, high market volatility and now the country’s most famous ankle, many unexpected events have challenged the robustness of the German recovery. However, up to now, the fundamentals of the Germany economy have rather improved than worsened. First quarter growth was better than initially feared, order books are filling and all leading indicators point to a further growth acceleration in the second quarter.

Looking beyond the summer, the growth momentum should slow down somewhat. Fiscal consolidation will also weigh on the German economy. Tax cuts have now officially been shelved at least until 2012. Additional consolidation efforts are also likely as the German government will want to continue its policy of leading by example. However, there is at least one upshot from the current crisis: the weaker euro. While many observers currently tend to see the euro as a crisis barometer, recent surveys show that many German businesses tend to be more pragmatic. For them, the weaker euro could be a blessing which simply boosts exports.

Wednesday, May 12, 2010

It’s a recovery, not a stagnation.

According to the first estimate by the German agency for statistics, the recovery continued in the Q1 2010. The German economy grew by 0.2% QoQ. Compared with the Q1 2009, German GDP increased by 1.7%. The decomposition of the GDP numbers will only be published in two weeks but recent monthly data indicate that growth was driven by exports and investments, while private consumption remained a drag on growth. In addition, the numbers for the fourth quarter of 2009 were revised upwards. Instead of stagnating, the German economy also grew by 0.2% QoQ in Q4 2009.

The strong March figures came right in time to make an almost lost quarter look somewhat better. Looking ahead, the recent Spring revival bodes well for the second quarter. All indicators signal a strong rebound. Confidence indicators are back at their pre-crisis levels, order books are still growing, the labour market is further stabilising and parts of the government’s stimulus package are only currently finding their way into the economy.

If Sunday’s big bail-out package succeeds in calming markets and confidence, the short-term impact from the Eurozone’s fiscal crisis on the German economy should be limited and even positive. Lower bond yields and the weaker euro could benefit the German economy. However, fiscal consolidation in several Eurozone countries and ending stimulus packages should have a downward impact on growth in the second half of the year.

Today’s numbers show that the recovery is continuing, even with the harsh winter weather. Still, the numbers do not show the recovery’s true colours, neither will second quarter growth. The bumpy ride will continue and, at least in the coming months, it should be a nice ride.

Eurozone puts a bazooka on the table

European policymakers have put a loaded bazooka on the table. In a co-ordinated action, Eurozone governments and the IMF have decided to provide around €750bn for Eurozone countries with weak public finances. At the same time, the ECB has entered unchartered territory to prevent systemic risks.

Like all good plans, the Eurozone bail-out scheme is not without risk or uncertainties. Governments and parliaments still need to agree, borrowing conditions are still unclear and the ECB put its credibility at risk.
The Eurozone’s bazooka will not solve fundamental fiscal problems, but it should prevent speculative contagion. Countries like Portugal and Spain have now some time to prove that they are different.

With the ECB buying government bonds, the risk of a systemic crisis should diminish. In a worst case scenario, the ECB could even make an orderly default possible.

The ECB’s credibility is now in the hands of governments, as the success or failure of the big bang still depends on the implementation of fiscal consolidation. There will come a time when the ECB will want to restore its credibility as an inflation fighter. However, for the time being deflationary risks from fiscal consolidation still prevail.

Friday, May 7, 2010

Hibernation ended.

German industrial production increased significantly in March, more than offsetting the winter dip. Industrial production was up by 4.0% MoM, from -0.2% in February. The increase was mainly driven by the production of capital and intermediate goods, and above all by the construction sector. As expected, after the end of the winter, the construction sector bounced back impressively by 26.7%.

Today’s numbers clearly illustrate that the industry’s hibernation has ended. With today’s strong increase in industrial production numbers, chances have increased that next week’s first estimate of Q1 GDP growth could be slightly positive. Whether positive or negative, the first quarter was not a good reflection of the sound underlying recovery. It will take until the second quarter before the real strength of the recovery will be visible.

With filling order books, business expectations back at pre-crisis level and increasing recruitment plans, the near term future for the German economy looks bright. However, the ongoing sovereign debt crisis will very likely also take its toll on the German economy. Therefore, it will be hard to take the current impressive momentum into the summer months. Enjoy it as long as it lasts.

Thursday, May 6, 2010

Return of the undercover hawk

As widely expected, the ECB today decided to keep interest rates on hold. It is obvious that in the current rather deflationary environment, rate hikes are only a scenario for the far-off future. In the Q&A session, all questions were once again related to Greece. Trichet did nothing to evoke new speculation about possible ECB steps. To the contrary, in what could be seen as an attempt to escape the Greek crisis, the ECB has secretly become more hawkish.

For the first time in a long while, at least the text of the ECB’s economic assessment was changed. On substance, the main message is still the same: the recovery of the Eurozone economy is continuing. However, there were some interesting changes to the ECB’s take on inflation.

According to the ECB, real GDP is expected to expand at a moderate pace and risks remain balanced. Greatest downward risks stem from the financial crisis, balance sheet adjustments and the labour market. As regards inflation, the ECB introduced a new distinction between global and domestic inflationary pressures. While global inflationary pressures might increase due to energy prices and emerging market inflation, domestic inflation in the Eurozone is expected to remain contained. Inflation expectations remain firmly anchored but the risks are only “still” remaining broadly balanced. In addition, two important sentences have been added to the ECB’s introductory statement: “The firm anchoring of inflation expectations remains of the essence. Monetary policy will do all that is necessary to maintain price stability in the euro area over the medium term”. In normal times, this would have marked a turning point towards a more hawkish stance. However, these are no normal times.

As expected, the Q&A session was only about Greece. Prior to the meeting, there had been plenty of market rumours and advice about the ECB could or should do in reaction to the Greek crisis. Several observers even proposed to ultimately purchase government bonds. Just looking at the facts, the ECB still owns the same toolbox as in the past. Theoretically, it could restart FX swap lines, renew one-year LTOs or extending full allotment procedures at its refinancing operations. A more radical move would be to purchase government bonds in the secondary market. However, such a step would be very controversial to say the least. In today’s press conference, Trichet did not give any hints that the ECB would soon be willing to go beyond last Sunday’s decision when they announced to accept Greek debt as collateral no matter what its rating is.

All in all, the ECB tried to say as little as possible on Greece and possible future action. Maybe this was the lesson from the last weeks and months when several u-turns and unfortunate communication had not done the ECB’s credibility any good. With significant deflationary pressure still looming from future fiscal consolidation, the ECB’s more hawkish tone was probably a bit exaggerated. However, it was an attempt to return focus back to what the ECB is best at: conducting monetary policy.