Van modder naar goud?

Uit puinhopen herrijzen*, modder wordt goud

Begin 2025 is de eurocrisis eindelijk achter de rug. Na de mislukte Lissabon en EU2020 strategieën is het tijd vooruit te zien. De Europese Commissie gaat op zoek naar een nieuwe slogan.

Het crisismanagement van de afgelopen vijftien jaren stond in het teken van doormodderen. Geen snelle beslissingen, maar tastend uit de crisis. Een doormodderstrategie op twee sporen: een structureel herstel van de weeffouten van de monetaire unie en tegelijkertijd het opruimen van het puin uit het verleden.

De Eurozone kreeg uiteindelijk geen “total make-over” met plastische chirurgie, maar een herstel met beademing, infuus en pijnlijke operaties. Na deze ingrepen staat er in 2025 geen centralistische Europese superstaat, maar een ingewikkelde constructie van een ex ante beleidscoördinatie. De Europese Commissie heeft weer meer, maar geen alomvattende, macht gekregen. Angelsaksische waarnemers snappen de besluitvorming en machtsverdeling in Europa nog altijd niet en denken bij six- en two-packs eerder aan buikspieren of rappers dan aan een preventief doorgrijpende centrale instelling. Een recht-toe-recht-aan alternatief met zichtbaar nationaal soevereiniteitsverlies konden politici thuis echter niet verkopen.

De nieuwe hoofdrolspeler in de Eurozone is het Europees Stabiliteits Mechanisme (ESM). Na lange onderhandelingen is het ESM niet louter een noodfonds meer voor landen, maar ook verantwoordelijk voor de afwikkelingen van banken. Het ESM is de onafhankelijke, analytische waakhond geworden, die de Europese Commissie nooit mocht zijn. In combinatie met nationale schuldenremmen zorgt het ESM soeverein voor houdbare overheidsfinanciën in alle Eurozone landen.

De make-over van de monetaire unie was alleen mogelijk omdat de crisis hardnekkig aanhield, anders dan veel Europese politici in 2012 hun kiezers voorhielden. Sneller dan verwacht stonden de regeringsleiders van Duitsland, Nederland en Finland voor de keuze “break-it-or-pay-it”. De mix van langdurige recessies, hoge werkloosheid en pijnlijke structurele hervormingen bleek explosief en kon zelfs niet door een gemeenschappelijk bankentoezicht noch door ingrepen van de ECB worden bestreden. Door de sociale onrust en het toegenomen nationalisme gleed de Eurozone meermaals langs de rand van de afgrond en werd het betaaldag. Schuldkwijtscheldingen en een systeem van sociale transfers waren het gevolg. Toch zijn de meeste periferielanden ook na vijftien jaar, gelijk Oost-Duitsland na de eenwording, nog steeds achterstandsregio’s met hoge werkloosheid en een “brain drain”.

De Eurozone is in het jaar 2025 stabiel, maar vergrijzing, het tekort aan eigen grondstoffen en economische machtsverschuiving naar opkomende landen maken van Europa eerder een toeristische bestemming dan een trots industriecontinent. Maar weer eens een nieuw groeitstrategietje doen, denkt de nieuwe president van de Eurozone, de 71-jarige Angela Merkel en presenteert de nieuwe toekomstvisie voor Europa: uit puinhopen herrijzen, modder wordt goud.

Dit stuk verscheen eerder in het Nederlandse NRC Handelsblad

Ifo adds to evidence of green shoots in the winter

The year ends on a positive note. Germany’s most prominent leading indicator, the Ifo index, increased in December for the second month in a row and stands now at 102.4; its highest level since July. While the current assessment component dropped to its lowest level since June 2010, the expectation component increased for the second consecutive month. In fact, expectations recorded the strongest monthly increase since July 2010.


The German economy is still in the course of its soft landing. With the sharp drop of industrial production and the narrowing of the trade surplus in October, a contraction of the economy in the fourth quarter has become almost inevitable. It is hard to believe that private consumption, particularly Christmas shopping (which in Germany actually almost always disappoints, after hopeful expectations), can be strong enough to offset weaker exports and industrial activity

However, looking into 2013. the biggest trump card the German economy holds is the gradual decoupling from the rest of the Eurozone throughout the crisis. The decoupling can be identified in several areas. First of all, and the most obvious, is the shift of exports from Eurozone countries towards non-Eurozone countries. Over the last years, the share of German exports to other Eurozone countries has continuously dropped from almost 45% in 2008 to roughly 35% this year. This enables the economy to benefit quickly from any rebound of the global economy and leave Eurozone worries behind. Secondly, the reforms of the early 2000s and the lack of qualified workers due to ageing have decoupled the labour market from its Eurozone peers. Currently, less growth is needed to create jobs. Thirdly, the investment cycle could be the next area of decoupling. In 2012, investment had been the strongest disappointment of the economy. However, with a pick-up in global activity, capacity utilisation should increase again, bringing back earlier investment plans which had been shelved due to increased uncertainty. As German companies can still benefit from record low interest rates, investment could be the next element of German decoupling from the rest of the Eurozone. Sound fundamentals and the gradual decoupling from the rest of the Eurozone offer a solid warranty for a quick rebound.

With a worsening current assessment but improving expectations, today’s Ifo sends a clear message: things will go worse before they get better. It looks as if any contraction of the economy should be short-lived.

EU Summit - all is calm but not all is bright

The last EU summit of the year turned out to be a tranquil pre-Christmas meeting. After finance ministers’ decisions on Greece and bank supervision, EU leaders slowed down their reform efforts. The famous roadmap towards further integration of the Eurozone has been delayed once again. In the tranquil pre-Christmas mood, some EU leaders might have started singing Christmas carols last night. However, unlike in the Christmas song “Silent night, holy night”, all is calm but not all is bright.


What initially was meant to be the big break-through for the Eurozone and course-setter towards a “genuine economic and monetary union”, turned out to be a tranquil year-end summit. Already ahead of government leaders’ arrival to Brussels last night, finance ministers had cleared the way towards a sunshine and roses evening. The EU and the Eurozone have ended the year with the typical mixture of delivering the bare minimum without overachieving a single tiny bit.

The first bare minimum was the break-through on Eurozone bank supervision. After another long meeting, European finance ministers agreed on a single supervisory mechanism for the Eurozone. Non-Eurozone countries can join on a voluntary basis. Supervision of the biggest banks (with balance sheets above 30bn euro or above 20% of a country’s GDP) will be conducted by the ECB, in cooperation with national supervisors. This new Single Supervisory Mechanism (SSM) will become effective in March 2014 at the earliest. Further delays cannot be excluded.

The SSM is meant to be the first step towards a fully-fledged banking union which should break the vicious link between sovereigns and financials. Remember that officially the ESM will be allowed to directly recapitalize banks once the SSM has become effective. Obviously, this will now have to wait at least until March 2014. A time line which clearly pleases the German and other core countries’ governments which still are opposing direct bank recapitalisation for legacy assets, or in other words: core Eurozone countries are not yet willing to put taxpayers’ money on the table to pay the bill of peripheral countries’ financial mistakes of the past. Further steps to complete a real banking union, in theory, would have to be a bank resolution mechanism and a deposit guarantee scheme. Up to now, Eurozone countries are still far off from any agreement on these two issues. Next year, the European Commission will present a first proposal for a bank resolution mechanism. All of this means that after the usual post-marathon meeting euphoria, the decision on the SSM is clearly not a game changer for the Eurozone.

The second bare minimum finance ministers delivered was the final green light to pay the next loan tranche for Greece, amounting to 49.1bn euro. The disbursement will be made in several tranches. The first 34.3bn euro will be paid out in the next days. The rest in the course of the first quarter, partly conditional to further Troika assessments. As we have often said in the past, yesterday’s green light for Greece clears another hurdle but it was not the last hurdle.

Agreement on Greece and the SSM, however, masks that there still is lots of disagreement on other crucial topics, not only on direct bank recapitalisation. Let’s not forget that this week’s summit was intended to even go further and to deliver a roadmap towards more or “genuine” integration. However, last night, EU leaders did not agree on anything else. EU president Van Rompuy’s roadmap had been downgraded to a background document. Binding contracts between countries and institutions to ensure structural reforms, financial incentives for structural reforms, a mechanism to absorb asymmetric shocks, harmonization of tax policies and labour markets? All these issues have been postponed until at least the summer of 2013. More visionary ideas which could have strengthened prevention by reducing national sovereignty like a Eurozone finance minister have disappeared entirely.

The crisis year 2012 comes to a close. It is a tranquil, almost conciliatory, year-end.Yesterday’s agreements on Greece and the SSM are already an achievement. Particularly the SSM is something no one had on the radar screen at the beginning of the year. Within the last year, next to the never-ending fire fighting in Greece, the Eurozone has managed to agree on a fiscal compact with mandatory national debt breaks, start the ESM and set up a Eurozone-wide banking supervision. Even if this week’s summit clearly disappointed on the vision thing, showing that there still is lots of disagreement, let’s try to be mild and not too critical: the Eurozone is still alive and it is moving into the right direction, even if it sometimes moves at a very slow speed. Enjoy the summit-free time, it won’t last for long.

Merkiavelli

Cubaanse toestanden in Duitsland. Afgelopen week werd bondskanselier Angela Merkel met bijna 98 procent van de stemmen herverkozen als leider van haar partij, de christendemocratische CDU. Geen charisma, geen speechtalent en geen visie. Maar toch staat Angela Merkel nu al twaalf jaar aan de leiding van de grootste partij van Duitsland en is ze zeven jaar bondskanselier. Zoals de oude mannen van de CDU nog steeds verbaasd en hoofdschuddend applaudisseren voor hun leidster, zal het vandaag en morgen ook de Europese leiders vergaan. Ook zij zijn slachtoffer geworden van Merkiavelli.


Merkel blijft een fenomeen. Vaak onderschat en belachelijk gemaakt, maar uiteindelijk staat ze er nog steeds en zijn haar politieke tegenstanders in binnen- en buitenland verdwenen. Ook de ster van de nieuwste uitdager, François Hollande, is snel getaand. De Europese top van vandaag en morgen zal duidelijk maken dat de vaak bekritiseerde politiek van aarzelen en kleine stappen, het aanmodderen, zegeviert.

Ondanks alle kritiek op en soms ook minachting voor Merkel zullen de Europese regeringsleiders groen licht geven voor een monetaire unie met een Duitse signatuur. Het tijdschema blijft onduidelijk, maar de verschillende elementen van de verbeterde eurozone worden steeds zichtbaarder. Europees bankentoezicht, maar dan alleen maar (beginnen met) de grote banken, en geen Europese depositogarantiestelsels. Meer macht voor de Europese Commissie. Bindende afspraken over structurele hervormingen, maar geen euro-obligaties. Financiële stimuli voor hervormingen, maar geen groei-initiatieven met meer schulden. Officieel is het een plan van Europees president Herman Van Rompuy, maar de stempel van Angela Merkel valt niet te ontkennen.

De aard van de eurocrisis maakt dat de Merkeliaanse politiek van aarzelen, draaien en onderwerpen afpakken van de oppositie ook in Europa zo succesvol is. De eurocrisis kon niet opgelost worden met snelle machoacties of met een Duitse blanco cheque voor noodlijdende landen. Het probleem in de eurozone is immers niet de aarzeling van Merkel, maar de aarzelende politiek in veel Zuid-Europese landen. Structurele hervormingen kwamen amper zelfstandig of vrijwillig tot stand, maar alleen onder extreme druk van buitenaf. Eerst in de gedaante van de financiële markten, nu in de gedaante van Angela Merkel. De terugkeer van een ander politiek fenomeen, Silvio Berlusconi, lijkt het beeld te bevestigen dat de hervormingswil zonder externe druk weer snel kan verdwijnen.

Aan het einde van een veelbewogen jaar lijkt Angela Merkel sterker dan ooit. De eurozone wordt meer Duits. Voor de monetaire unie is dat een zegen, voor de populariteit van Angela Merkel en Duitsland in de rest van Europa echter niet. Misschien zijn het de noodzakelijke negatieve neveneffecten van Merkiavelli in Europa. Maar Cubaanse verkiezingsuitslagen zal Merkel in Europa niet halen.

Deze column verscheen vandaag in het Belgische dagblad "De Tijd".

German IP crashes in October

Heading towards contraction. German industrial production dropped by a sharp 2.6% MoM in October, from -1.3% in September, providing further evidence that the economy’s backbone is quickly losing steam. In annual growth terms, industrial production is down by 3.7%. The drop was driven by all sectors except for non-durable consumer goods. Production in the construction sector fell sharply by 5.3% MoM.

The German decoupling from the rest of the Eurozone has come to an end. Strong trading ties with non-Eurozone countries had shielded the economy against the euro crisis. Now, with the global economic cooling in the second half of the year, this immunity is quickly fading away. The thinning out of order books throughout the year is finally feeding through to the real economy.

There are currently two opposing trends in the German economy. In the short term, the “deflating” of order books on the back of the euro crisis and a weaker global economy should continue to feed through to activity. With today’s industrial production data, a contraction of the economy in the fourth quarter has almost become inevitable. Even a technical recession of two consecutive quarters cannot be excluded entirely, particularly if the fiscal cliff negotiations in the US disappoint and hamper the US recovery. Looking beyond the next one or two quarters, however, the German economy should be able to pick up speed relatively quickly. The latest improvement in confidence indicators and new orders clearly indicate that the current industrial slump should be rather short-lived.

Our general take on the German economy remains positive. However, today’s industrial data shows that unfortunately things first have to get worse before they get better.
 

Draghi refuses to play Santa Claus this year

At today’s meeting, despite a surprisingly downbeat economic outlook, the ECB kept interest rates on hold. For the first time since the start of the crisis, the December meeting was no early gift giving for financial markets and the Eurozone economy.


The ECB’s macro-economic assessment remains cautious. Risks to the economic outlook are still to the downside, while risks to the outlook are seen as broadly balanced. According to Draghi, the ECB expects economic activity in the Eurozone to gradually recover “later in 2013”. This trajectory is also reflected in the latest ECB’s staff projections. In these projections, GDP growth forecasts for 2013 have been revised downwards significantly. The new mid-point projection is now -0.3%, from +0.5% in September. For 2014, ECB staff expects GDP growth of 1.2%. As regards inflation, the projections were revised slightly downwards. For 2013, ECB staff now expects inflation to come in at 1.6%, from 1.9% in September, and 1.4% in 2014.

It looks as if there are diverging views on the economic outlook within the ECB. At face value, the sharp downward revision of the growth outlook for 2013 and lower inflation could have been an ideal invitation for another rate cut. Draghi’s comment that there was a “prevailing consensus” to leave rates unchanged indicates that some ECB members must have been in favour of a rate cut. The decision to keep rates on hold, at the same time, shows that currently more ECB members believe in green shoots sprouting in the winter and half-empty glasses turning half-full rather than in their own staff’s projections.

The fact that the ECB kept rates on hold even after these strong downward revisions for growth and inflation in our view shows that the ECB prefers to stimulate the economy with non-standard measures and not with additional rate cuts. This view is supported by the ECB’s decision to continue the main refinancing operations with full allotment at least until early July 2013. A rate cut might not entirely be off the table but would require an even worse weakening of the economy.

Since the start of the crisis, ECB meetings in December had been early gift givings for financial markets and the Eurozone economy: a 75bp rate cut in 2008, generous liquidity provisions in 2009 and 2010 and a rate cut and the LTRO bazooka last year. It looks as if at least this year, Mario Draghi quit his job as early Santa Claus.

German new orders surge in October

Lubricating oil for German growth engine is running again. German new orders increased by 3.9% MoM in October, from a 2.4% drop in September. This is the strongest monthly increase since January 2011. On the year, new orders are still down by 2.4%. The increase came from both domestic and foreign orders. Interestingly, even new orders from other Eurozone countries posted their second strongest monthly increase since the beginning of the year (+3.5% MoM).

During the summer months, the German economy’s safety net against the euro crisis had become dangerously thinner. Order books had become smaller and at the same time companies increased their inventories. The negative impact of the summer developments should still be felt in the industrial sector in the coming months. However, today’s increase in new orders indicates that the safety net is stabilising again. At least in Germany, green shoots seem to sprouting during the winter. If this trend continues, the current growth worries for the Eurozone’s biggest economy could turn out to just be a tempest in a teacup.

Letter from Brussels - Die schiefe Achse

Ohne Französisch geht in Brüssel fast gar nichts. Ob nun im Café oder in den Gängen der Europäischen Kommission. Ohne französische Sprachkenntnisse kann man schon mal verdursten oder bleiben Türen geschlossen. Jeder Neu-Brüsseler hat daher auch ein französisches Wörterbuch im Gepäck.

 

Die „Grande Nation“, Frankreich, ist auf dem besten Weg der neue kranke Mann der Eurozone zu werden. Langsam, aber sicher, hat sich Frankreich wirtschaftlich aus dem Kreis der Kernländer des Euroraums verabschiedet. Die hohe Arbeitslosigkeit, die schwindende Wettbewerbsfähigkeit der Industrie, das hohe Haushaltsdefizit und die schnell steigende Staatsschuld sind hausgemachte Probleme, die nur langsam in den Griff zu bekommen sind.

 

Mit dem wirtschaftlichen Abschwung folgt im Augenblick auch der Abgang Frankreichs von der europäischen Bühne. Während französische Ideen für die Zukunft der Eurozone Mangelware sind, hat die deutsche Regierung die Deutungshoheit übernommen. Dazu kommen regelmäßige Störfeuer. Hollande’s offene Kritik an Angela Merkel während und nach dem französischen Wahlkampf, übertriebene Siegerposen nach dem Euro-Gipfel im Sommer und der versuchte Aufbau einer Anti-Merkel Allianz aus südeuropäischen Ländern waren mehr als nur Störfeuer.

 

Die Ideen zur Zukunft des Euros liegen weit auseinander. Deutschland will bedingte Integration. Frankreich die bedingungslose Haftungsunion. Ein Kompromiss zwischen Gleichstarken wäre ein zu schwacher Kompromiss für den Euro. Was Jahrzehnte lang undenkbar war, könnte jetzt vielleicht sogar ein Segen für den Euro sein: eine schwache deutsch-französische Achse.

 

Den Kaffee wird man in Brüssel in den kommenden Monaten wohl weiterhin auf Französisch bestellen müssen. Für den weiteren Weg der Euro-Krise kann das französische Wörterbuch aber guten Gewissens weggeschmissen werden.

 

Dieser "Letter from Brussels" wurde schon in der 'Euro am Sonntag' veroeffentlicht.

German unemployment rate unchanged in November

German unemployment dropped by a non-seasonally adjusted 1,900 in November, bringing the number of unemployed down to the lowest level since November last year. Currently, 2.751 million people are without a job. However, today’s improvement is the weakest November improvement since 2004. In seasonally-adjusted terms, unemployment increased slightly, leaving the seasonally-adjusted unemployment rate unchanged at 6.9%.


Supported by the strong labour market, private consumption has become an important driver of German growth. Since the beginning of 2010, private consumption has grown by an average 0.3% QoQ. Of course, this is nothing compared with the shopping frenzy experienced in other countries in the past.

Looking ahead, however, it is doubtful whether private consumption can really take over the baton as main growth driver for the German economy. Employment expectations in the manufacturing sector have entered negative territory, most open vacancies are temporary jobs and several companies have reintroduced short-time work schemes.

German unemployment looks set to increase further. This increase, however, should only be a very mild increase, mainly located in the export industry. Companies operating in domestic sectors, as eg the construction sector and health services, still have a strong demand for labour. The lack of qualified workers and employees continues to be a pressing issue in some sectors, indicating that the labour market could enter a two-speeded period.

Today’s numbers provide further evidence that the labour market is gradually losing steam. However, the lack of qualified employees and still strong labour demand in domestic sectors should make the current slowdown a very gradual one. In fact, if the external environment improves quickly, the slowdown could not only turn out to be gradual but also very short-lived.

Eurozone rebalancing in one chart

Eurogroup decides on Greek fudge

Eurozone finance ministers finally agreed on measures to grant Greece two additional years for austerity and structural reforms. These measures remain highly conditional and are no guarantee to avoid debt forgiveness in the future.


During last night’s Eurogroup meeting, the Eurogroup gave the principle green light to pay out the next tranche of the bailout programme amounting to 43.7bn euro. At the same time, the Eurogroup agreed on several possible measures to grant Greece two additional years for its austerity measures and structural reforms.

The possible measures are the following: i) a lowering by 100bp of the interest rate charged to Greece on the bilateral loans of the first bailout package; ii) a lowering by 10bp of the guarantee fee costs paid by Greece on the EFSF loans; iii) an extension of the maturities of the bilateral and EFSF loans by 15 years and a deferral of interest payments of Greece on EFSF loans by 10 years; iv) a commitment by Member States to pass on to Greece's escrow account, an amount equivalent to the profit the ECB and national central banks make on their Greek bond holdings under the SMP programme.

To benefit from the above measures, however, Greece will also have to play its role. In fact, the above measures will only be implemented gradually and only under certain conditions to restore debt sustainability. To ensure Greek debt sustainability without debt forgiveness, the Eurozone agreed on a series of measures. The escrow account has become more important as not only all privatization revenues have to be transferred to this account but also the “targeted primary surplus as well as 30% of the excess primary surplus”. Moreover, a debt-buy-back could also be part of restoring debt sustainability. However, this programme is anything but certain as the rather vague official formulation of “the Eurogroup was informed that Greece is considering certain debt reduction measures in the near future, which may involve public debt tender purchases of the various categories of sovereign obligations. If this is the route chosen, any tender or exchange prices are expected to be no higher than those at the close on Friday, 23 November 2012.”

Taking all these measures together, the Eurogroup provided the expected fudge to keep Greece in the Eurozone. It is obvious that even the Eurogroup does not expect that this was the last word on Greece. Even if debt forgiveness was not mentioned, the sentence that Eurozone countries will consider further measures to ensure that Greek debt can reach 124% of GDP in 2020 and a level “ substantially lower than 110% in 2022” is rather telling.

At first glance, the political will to give Greece two additional years for austerity and reforms has finally been substantiated. However, as so often in the past, there are still some elements in the Eurogroup’s decision that look clear and good at the end of a long Brussels’ night but which could lose their congeniality after sunrise. Here are just a couple of them: the Eurogroup’s commitments remain highly conditional, some national parliaments (like the German Bundestag) still need to agree to the measures and the debt-buy-back scheme looks anything but certain. Chances are high that this month’s meetings were not the last night-breaking discussions on Greece.

After three meetings this months and a total of more than 24 hours of discussing and negotiating, the Eurozone countries have put their money where their mouth is. The political will to reward the Greek austerity and reform measures has already been there for a while. Now, this political will has finally been supplemented by financial support. However, it is clearly not a carte blanche for Greece but rather a very tight leash.

German economy remains crisis-denier

Today’s GDP and Ifo readings have given some food for thought on the growth prospects of the German economy.


The second estimate of the statistical office confirmed that the German economy defied the euro crisis once again in the third quarter. GDP growth in the Eurozone’s biggest economy came in at 0.2% QoQ, from 0.3% in 2Q. Growth was driven by net exports, with exports up by 1.4% QoQ, government (0.4% QoQ) and private consumption (0.3%). Investments were down by 1.7% QoQ. Inventory reductions, however, illustrated further signs of crisis vulnerability.

Unfortunately, it looks as if these positive GDP data could soon be nothing more than the memories of the good old days. Signs of a further cooling of the German economy are increasing. Order books have become alarmingly thin, industrial production is dropping and German businesses have become downbeat. Earlier this week, a survey among businesses showed that for the first time since 2009, there was a majority of pessimists regarding the outlook for 2013. Uncertainty about the Eurozone was the most important factor hampering investment decisions.

However, any short-term cooling could turn out to be rather short-lived, as indicated by today’s Ifo data. The Ifo index surprised with an increase to 101.4, from 100.0 in October. This was the first increase since March 2012. The increase was driven by both the current assessment component (108.1, from 107.3) and expectations (95.2, from 93.2).

The increase came as a clear surprise but maybe only reflects typical German sobriety. Even if domestic demand should lose some steam due to a weaker labour market, the risk for the economy of falling off the cliff looks very limited. To the contrary, the creeping decoupling from the rest of the Eurozone – only 1/3 of German exports currently go to Eurozone peers – enables the economy to benefit quickly from any rebound of the global economy. In this regards, latest signs of improvement from the US and China were good news for German companies.

Solid fundamentals should spare the economy from the recessionary mix of structural reforms and austerity measures. The German economy might have lost its invulnerability but today’s numbers indicate that the economy should not join the race to the bottom most other Eurozone countries are currently in.

Eurozone - Haste makes waste

Eurozone finance ministers have a strong affinity for cliff-hangers. Last night’s almost twelve-hour meeting did not bring any conclusion on how to finance more time for Greece. The decision was postponed until next week Monday.


The only thing that is clear after last night’s Eurozone finance minister meeting is that nothing is clear. The Eurogroup postponed the decision on how to finance more time for the Greek adjustment to next week Monday. The phrase in the official statement that “the Eurogroup has had an extensive discussion and made progress in identifying a consistent package of credible initiatives aimed at making a further substantial contribution to the sustainability of Greek government debt” shows that disagreement remains deep.

For once, Greece had apparently no responsibility for the further delay. Indeed, the final statement praises Greece for having met all prior actions required ahead of the meeting, citing structural reforms, the budget for 2013 and the 2013-2016 medium term fiscal strategy. Data released yesterday by the Greek Ministry of Finance confirmed that progresses in the implementation of the adjustment are indeed being made, with the state sector budget execution ahead of schedule at end of October.

At the Eurogroup level, the two issues at stake still are: i) the financing of the Greek funding gap, resulting from two additional years to adjust, and ii) how to restore long-term debt sustainability. Finding the money for two additional years (up to 32bn euro) is probably the easier task than restoring debt sustainability. According to latest reports, Greek debt will rather be above 140% of GDP in 2020 than close to the official target of 120%. In euro, this gap in 2010 will probably amount to 70bn to 100bn. Finding such an amount requires lots of financial creativity as long as Eurozone countries do not want to embark on clean-cut solutions like debt forgiveness or a third package. The current deadlock seems to result from strongly diverging views between the IMF and the Eurozone on how to restore debt sustainability. While the IMF favours a clear-cut solution, most Eurozone countries seem to support a the fudge option, interpreting debt sustainability in a more flexible manner than the IMF.

Last night’s meeting has again shown that that the Greek case pushes the limits of Eurozone finance ministers’ financial creativity. Or to put it more positively: maybe ministers just follow the principle of haste makes waste.

The crisis-denier - German GDP up 0.2% QoQ in 3Q

The crisis-denier. According to a first estimate of the statistical office, the German economy once again defied all swan songs. Eurozone's biggest economy grew by 0.2% QoQ in the third quarter, from 0.3% in 2Q 2012. On the year, German GDP was up by 0.9%. Combined with stronger-than-expected French GDP growth (+0.2% QoQ in 3Q), chances have increased that Eurozone GDP growth (released at 11am CET) could be better than our forecast of -0.3% QoQ.


The decomposition of German growth will only be released at the end of the next week but according to the press statement of the German statistical office and available monthly data, consumption and net exports were the main growth drivers. The sharp drop of all confidence indicators since late-Spring has not yet been translated into a contraction of the economy. In fact, the real economy proves to be more resilient than expected. The strong labour market, wage increases but above all the good old friend exports are the main drivers of sustained resilience.

Looking ahead, however, at least the near term outlook for the German economy looks anything but rosy. It is hard to believe that the current decoupling of soft and hard data can last much longer. To be more precise, rapidly thinned out order books do not bode well for industrial production in the coming months. The negative industrial production reading in September gave already a bitter foretaste of worse things to come.

Looking beyond the near term, however, shows a somewhat more positive picture. Also in 2013, the German economy should once again be spared from the recessionary mix of structural reforms and austerity measures. Moreover, even if domestic demand should lose some steam due to a weaker labour market, the risk for the economy of falling off the cliff looks very limited. To the contrary, the creeping decoupling from the rest of the Eurozone – only 1/3 of German exports currently go to Eurozone peers – enables the economy to benefit quickly from any rebound of the global economy.

Today’s numbers have some similarities with Germany’s national soccer team. Even if the performance forbids any enthusiasm, it is still sufficient to keep the rest of the Eurozone in check…

Eurozone - Two more years

Last night’s Eurogroup meeting paved the way for Greece to stay in the Eurozone. Ministers decided on two additional adjustment years for Greece. Finding the money to fund these extra years, however, was postponed.

Last night’s Eurozone finance minister meeting was finally a meeting that ended before mid-night. European experience, however, also shows that shorter meetings are normally a sign of significant disagreement and that crucial decisions have simply been postponed. Yesterday’s meeting adds evidence to this experience. 

As expected, ministers agreed that Greece could have two more years to meet its fiscal target, shifting the goal of having a primary budget surplus from 2014 to 2016. These two years are a kind of reward for the Greek government. Notably, the official Eurogroup statement is full of praise for the undertaken efforts by the Greek government. Interestingly, the statement also refers to the efforts taken by citizens, a gesture of acknowledgement of the social impact of austerity measures and structural reforms. 

Of course, more time also means more money. Two additional years lead to an immediate funding gap of around 30bn euro which needs to be filled but also put the debt sustainability target of a debt ratio of 120% of GDP by 2020 at risk.

As regards the funding gap, no decision was taken last night. Eurogroup president Juncker announced that this issue should be discussed at another meeting on 20 November and at the latest on 28 November. These dates will give governments the chance to get the green light from national parliaments for changes to the Greek programme. As regards debt sustainability, media reports mentioned a debt ratio of 140% of GDP in 2020 in the new troika report.

The race on how to finance the new 30bn euro and how to restore debt sustainability is still open. Option range from a clean-cut third bailout package for Greece to debt forgiveness. In our view, probably none of these two options will eventually be chosen. The most likely outcome of the next two weeks should be a typical Eurozone fudge: lower interest rates on the current Greek loans and an extension of the loans. Imagination or creativity has no limits. Yesterday, Juncker offered another fudge, saying that the date of bringing the debt ratio down to 120% of GDP could simply be delayed by two years. But let’s be clear, even such a Eurozone fudge would be a covert Official Sector Involvement as rescheduling of debt obviously also has its costs.

Yesterday’s meeting was another small step in the Eurozone saga. The political will to keep Greece in the Eurozone had already emerged over the summer. Now, it looks as if all other elements have to fit into this political will. We remain confidence that the next tranche will be paid and that the Eurozone will also find an agreement on how to bridge the new funding gap in the next two weeks. Needless to say that the final decision on the next Greek tranche, a new financing gap and debt sustainability will not be the end of the matter.

ECB meeting - All Quiet in Frankfurt

As expected, the ECB kept its powder dry at today’s meeting. Rates on hold and no other measures to support the Eurozone economy. Instead, lots of backslapping for the new crown jewel, the OMT program.

The ECB’s macro-economic assessment remained virtually unchanged. The ECB does not close its eyes to the Eurozone reality, expecting no improvement of economic activity towards the end of the year. It looks as if next month’s ECB staff projections will join the crowd of downward revisions for 2013 growth. As regards inflation, the ECB still expects headline inflation to drop below 2% in the course of next year. The closely monitored balance of risks remained unchanged. According to Draghi, risks to the economic outlook remain on the downside. Risks to the outlook for price developments remain broadly unchanged.

Ahead of today’s ECB meeting, there had been some new speculation about a possible rate cut when Mario Draghi yesterday said at a speech that the “risks of inflation are currently very low over the medium term”. Some market participants had interpreted this as a dovish signal, even worthwhile breaking the so-called Purdah period ahead of ECB meetings. Today’s press conference shows that the speculations were premature. The ECB’s bias remains unchanged. Of course, there still is a bias towards easing but it is not an imminent rate cutting bias.

In fact, Draghi’s countless repetitions of the importance of the OMT program indicates that the ECB currently does not consider rate cuts as an effective tool to tackle the recession. Draghi confirmed that the ECB stood ready to activate the program. However, activation required a country to ask for an ESM program. There was no OMT without a program.

The OMT remains the crown jewel in the ECB’s anti-crisis toolbox. However, as Draghi rightly said, with the OMT, the ECB has put in place a fully effective backstop for the Eurozone. A backstop against the tail risk of a Eurozone break-up. In our view, however, the OMT is not the magic bullet that can also restore growth. Even with structural reforms, austerity measures and an active OMT, chances are high that the ECB will need to come up with additional measures to support the Eurozone economy. A rate cut, even if it will not come next month, could be part of the measures.

All in all, today’s meeting was almost a non-event. The information content was close to zero. If the ECB ever starts a reassessment of its transparency policy, today’s meeting provides an argument to shorten the press conferences.

Lang zal Mario leven...

Een goede Duitser baalt dezer dagen. De eerste verjaardag van Mario Draghi aan de top van de Europese Centrale Bank (ECB) is voor veel Duitsers namelijk geen feest. In hun ogen heeft de Italiaan, voor wie inflatie even vanzelfsprekend is als tomatensaus bij pasta, de heilige Bundesbank de nek omgedraaid en de basis gelegd voor een nieuw tijdperk van ellende. Maar heeft Mario Draghi het echt zo slecht gedaan?

Zeker is dat het eerste jaar van Super Mario de geschiedenisboeken ingaat als het jaar waarin de ECB zich eindelijk van de Duitse Bundesbank kon emanciperen door vrijwel alle taboes te doorbreken.

De eerste taboebreuk was de Duitse afkeer van de zogenaamde tweederonde-effecten. De inflatievrees verleidde de ECB onder Jean-Claude Trichet liefst twee keer tot misplaatste renteverhogingen omdat de ECB zich blindstaarde op de Duitse economie. De renteverhogingen in 2008 en ook weer afgelopen jaar waren verhogingen voor de Bundesbank, verblind door het Duitse herstel. Nog geen vijf weken in dienst, maakte Draghi deze renteverhogingen van 2011 weer ongedaan.

De tweede taboebreuk was de benoeming van Peter Praet als hoofdeconoom van de ECB. Ook dat was een zet van Draghi. Voor het eerst in de geschiedenis geen Duitser op die positie. Het Duitse ECB-bestuurslid Jörg Asmussen kreeg een andere functie, die veel beter bij zijn politieke achtergrond paste.

 De derde taboebreuk ligt voor de hand, het OMT-programma. Dat is het nieuwe wondermiddel van de eurozone, waarmee de ECB onbeperkt staatsobligaties wil opkopen van landen die een beroep doen op het Europese noodfonds. Bundesbank-voorzitter Jens Weidmann stemde als enige tegen het programma en speelde daarmee handig in op het nationale Duitse trauma van staatsfinanciering door de centrale bank en van hyperinflatie.

Volgens de meeste Duitsers leggen die drie taboebreuken de basis voor een periode van hoge inflatie. Er zijn inderdaad de eerste tekenen van zeepbellen op de Duitse vastgoedmarkt en bij de Duitse staatsobligaties. Ze zijn niet te wijten aan te veel anticrisisbeleid van de ECB, maar wel aan te weinig anticrisisbeleid in de hele eurozone. Ze zijn de gevolgen van de vlucht naar veilige haven Duitsland en van kapitaal dat (weer) naar Duitsland komt.

Super Mario heeft (h)erkend dat de eurocrisis niet alleen een liquiditeits- en schuldencrisis is, maar ook een vertrouwenscrisis. Door zijn pragmatisch en proactief beleid helpt hij de eurozone te overleven. Als de prijs daarvoor het demythologiseren van de Bundesbank is, betaal ik die prijs graag. Laat het mijn Duitse vrienden niet horen, maar ik zing dezer dagen stiekem voor Mario. Lang zal hij leven in de gloria.

Deze column verscheen vandaag in het Belgische dagblad "De Tijd".

Merkel's thought leadership takeover?

It seems as if German chancellor Merkel wants to capitalise the current lack of a Eurozone thought leadership, trying to actively steer the integration debate.

At Yesterday, German chancellor Merkel spoke before the European Parliament, calling for far-reaching reforms of the monetary union. What she said was not new but it was another advance, trying to steer the European debate. According to Merkel, the Eurozone 2.0 required more common policies in the fields of financial sector regulation, fiscal and economic policies. The monetary union needs more coordination, not only of fiscal policies but also of other policies. Merkel mentioned a further harmonization of labour market and tax policies as further areas of closer coordination. To reach this goal, the Merkel again proposed a king of two-pillar strategy of stick-and-carrot. The stick would be a further loss of national sovereignty with far-reaching powers and authorities for the European Commission. Merkel even mentioned the possibility that the European Commission could directly intervene in national budgets. The carrot could be the so-called fiscal capacity, a Eurozone fund, which should reward successful structural reforms. The ultimate carrot of real financial burden sharing like for example Eurobonds, however, was not (yet) part of the official German strategy.

While the rest of the Eurozone’s government leaders have their hands full with enormous domestic tasks and challenges, the German government is slowly but surely filling the power vacuum as opinion leader in the euro crisis. Obviously, it would still take a couple for years before the German ideas and proposals could eventually be implemented. However, it looks as they are seriously trying to push the Eurozone into the German direction. Given the current (im-)balance of political forces in the Eurozone, Merkel’s chances of success look currently better than ever before.

Industrial slowdown continues

The slowdown continues. German industrial production dropped by 1.8% MoM in September, from -0.4% in August, providing further evidence that the economy’s backbone is quickly losing steam. In annual growth terms, industrial production is down by 1.2%. The drop was mainly driven by all manufacturing sectors. Only the construction sector recovered from its August decline, increasing by 2.7% MoM. Interestingly, despite today’s drop, industrial production was still stronger in 3Q than in 2Q.


The German decoupling from the rest of the Eurozone has come to an end. Strong trading ties with non-Eurozone countries had shielded the economy against the euro crisis. Now, with the global economic cooling in the second half of the year, this immunity is quickly fading away.

Looking ahead, latest indicators do not give much hope that the current downward trend will reverse any time soon. Business sentiment has been on a Yesterday’s new order data was again a disappointment. In September, new orders from non-Eurozone countries dropped by almost 6%, while new orders from Eurozone peers even plunged by more than 11% MoM. At the same time, companies have started to increase inventories. The increasing discrepancy between built-up inventories and emptying order books does not bode well for the near-term outlook for the German industry. However, if the recent positive cyclical trends from the US and Chinese economies prove to be sustainable, the German industrial slowdown could be rather short-lived with a rebound in the first half of 2013.

Today’s industrial production data send a two-fold message: on the one hand, it confirms our view that the German economy could have avoided a contraction in the third quarter. However, on the other hand, it also confirms our view of gradual stagnation. In short, the German economy is stuttering but not (yet) plunging.

MIld slowdown of German labour market continues

The mild slowdown continues. German unemployment dropped by a non-seasonally adjusted 34,900 in October, bringing the number of unemployed down to the lowest level since November last year. Currently, 2.753 million people are without a job. However, this was the weakest October improvement since 2002. In seasonally-adjusted terms, unemployment increased slightly, leaving the seasonally-adjusted unemployment rate unchanged at 6.9% after an upward revision of the September data. With hindsight, the September increase was the first increase since June 2009.


The strong labour market has been one of the main drivers of German growth in the first half of the year. Low unemployment, record high employment and the latest increase in real wages supported private consumption and helped cushioning the industrial slowdown.

Looking ahead, however, it is doubtful whether private consumption can really take over the baton as main growth driver for the German economy. Employment expectations in the manufacturing sector have entered negative territory, most open vacancies are temporary jobs and several companies have reintroduced short-time work schemes. The official vacancy index for the entire economy dropped to 160, from 161 in September. This was the fourth decline within five months and another sign of a cooling labour market. However, this is not a general cooling. Up to now, the euro crisis and the slowdown of the global economy have only affected the export sector but hardly the domestic economy. Companies operating in domestic sectors, as eg the construction sector and health services, still have a strong demand for labour. The lack of qualified workers and employees continues to be a pressing issue in some sectors, indicating that the labour market could enter a two-speeded period.

Today’s numbers provide further evidence that the labour market is gradually losing steam, indicating the cushioning impact on the economy should peter out in the coming months. However, the lack of qualified employees and still strong labour demand in domestic sectors should make the current slowdown a very gentle one.

Greek days have started

With three meetings in less than two weeks, Eurozone finance minsters hope to finally strike a deal on giving Greece more time for its adjustment.

The decisive phase for Greece has started. Yesterday, Eurogroup president Juncker announced an unscheduled meeting of Eurozone finance ministers on 8 November. With the scheduled conference call of ministers on 31 October and the already planned Eurogroup meeting on 12 November, ministers will have three meetings to decide on further steps for Greece. Even if the Troika report has not (yet) been officially released, it seems clear that the Eurozone is willing to give Greece somewhat more time for the adjustment.

More time, however, would eventually also cost more money. According to earlier market reports, a two years delay of the austerity measures could lead to a financing gap of between 15bn and 30bn euro. This financing gap would have to be closed to keep the IMF on board of the Greek rescue and to be able to pay out the next tranche of the loan. Of course, always assuming that Greece fulfills its obligations of the structural reforms and austerity measures.

Generally speaking, more time for Greece could be “bought” by two main options: a third bailout package or debt forgiveness. This is what according to media report is also proposed by the Troika. However, none of these two options is politically attractive for most Eurozone countries as both options would cost tax payers’ money. Therefore, it did not come as a surprise that the German government directly and indirectly tried to rule out both options, with opposition against debt forgiveness being much louder than against a third package. Particularly, German chancellor Merkel seems to be – very gradually – giving up opposition against a third aid package. While a third Greek bailout would probably not be supported by all of her own coalition’s lawmakers, Merkel could get parliamentary support from the biggest opposition party, the social democrats. Less than one year ahead of the federal elections, Eurozone matters could increasingly be dominated by German domestic politics.

Debt forgiveness (aka Official Sector Involvement) would, according to the German government, be against the principle of no-bailout principle (for the government) and against the principle of no-monetary financing (for the ECB). While the monetary financing argument remains a strong one for the ECB, the no-bailout argument looks much weaker, particularly in light of all rescue actions of the last years. As a consequence, some kind of OSI should not entirely be ruled out. However, it would not come for free for Greece. In our view, OSI or debt forgiveness would come with even more strings attached than the current programmes, leading to more and far-reaching loss of sovereignty. The core Eurozone countries would do everything to avoid the impression that OSI is relief for free. Otherwise, other Eurozone peripheral countries could be tempted to ask for the same.

Given the broader consequences of an OSI or debt forgiveness and the limited political appetite in several Eurozone parliaments for a third bailout package, filling the funding gap for Greece will again require some creativity. A possible way out, at least in the short-term, could be a combination of several options like lowering the interest rates on the first two Greek packages and front-loading parts of the funding of the second package. This could again kick the Greek can further down the road.

German Ifo drops again

Today’s leading indicators have added clear evidence that recessionary risks in the German economy are increasing. The Ifo index continued its recent downward trend in October, dropping to 100, from 101.4 in September. This is the sixth consecutive drop, bringing the Ifo index to its lowest level since February 2010. The drop was driven by a sharp deterioration of the current assessment component which dropped to 107.3, from 110.3. Earlier today, the PMIs painted a similar dire picture with the PMI manufacturing dropping to 45.7, from 47.4. The only upside in today’s Ifo report was that the expectation component remained unchanged.


The soft landing of the German economy continues. The sharp drop in the current assessment component shows that the good times are, at least for now, over. The industry’s safety net has become very fragile. Order books have become significantly thinner over the last months and orders at hand are currently as low as in October 2010. At the same time, companies have increased their inventories. A combination which clearly does not bode well for industrial production in the coming months.

The slowdown of the German economy is not only a consequence of the euro crisis but also of the global economic cooling. In fact, at least German exporters have started to decouple from the rest of the Eurozone. Over the last four years, the share of Eurozone countries in total German exports has dropped from around 43% to roughly 36%. Currently, Germany exports more to China than to Ireland, Greece, Portugal and Spain together. As long as the main economic blocs outside Europe can pick up steam again, Germany should be able to escape the current fate of most of its Eurozone peers.

With the ongoing slowdown, calls for fiscal stimulus are likely to become louder again. Not only for the sake of Eurozone rebalancing but also to support the German economy. Chancellor Merkel has not entirely ruled out additional stimulus. However, with the constitutional debt brake starting in 2016 and probable tensions within the government on how to spend it, any new stimulus should remain very limited. The tax cuts decided last year, amounting to roughly 0.1% GDP in both 2012 and 2013, illustrated the government’s preference for austerity rather than stimulus.

All in all, today’s Ifo index calls for a somewhat nuanced interpretation. The sharp drop in the current assessment component is a clear sign that the economy has entered contraction territory. Stabilised expectations, however, give hope that any contraction will not feel like a recession.

Germany discusses fiscal transfers

German politicians are currently discussing changes to the system of fiscal transfers. Domestic ideas could easily become a blueprint for the Eurozone.


Creditors wanting to reduce their payments, debtors hammering on social solidarity. No, it is not the Eurozone or the latest negotiations on the EU budget. It is the German states which are in the middle of renegotiating the system of fiscal transfers between the German States. The German system of fiscal transfers is highly complex and consists of different layers and ways horizontally and vertically, to redistribute wealth across states to ensure an equal minimum standard of living. In total, roughly 1.5% of German GDP is redistributed across the country per year. Now, the biggest part of these fiscal transfers, the so-called Laenderfinanzausgleich, ie, horizontal transfers between the individual states, is about to change.

Yesterday, Chancellor Merkel’s Christian-democratic party (CDU) agreed on possible significant changes to the system of fiscal transfers. Elements of the CDU’s proposal sound familiar to those who follow the Eurozone crisis: receiving states should fall under stricter supervision and control from the Stability Council (which was established in 2010). The Stability Council should also get more powers to intervene. Breaching the national debt brake should automatically lead to sanctions. In extreme cases, the Stability Council could receive the right to impose higher taxes in states not sticking to the debt brake. Moreover, transfers should also take demographic changes into account.

This is the first time that a reform proposal actually comes from all states and not from the federal level or just the paying states. Of course, it is only a first proposal from one party and it needs more to change the system of fiscal transfers. However, yesterday’s proposal at least shows that the discussion has started.

It might look like a small domestic news item, but yesterday’s agreement within Chancellor Merkel’s Christian-democratic party (CDU) does not only send a strong signal to other German parties but also to the rest of the Eurozone. The principle of conditional solidarity lives on and the idea of a powerful and independent control institution also sounds familiar. Maybe Merkel’s party did not only decide on domestic matters but also sent out a blueprint for the Eurozone.

EU Summit - Long night, few results

The first session of this week’s European Summit was again one of these red-eyed long nights with few concrete results. The new bank supervisory mechanism will come but will not be effective on 1 January 2013.


During a 10-hour marathon, European leaders discussed nothing less than the future of the monetary union or – to be more precise – EU president Van Rompuy’s report on possible paths to more Eurozone integration.

It was already obvious from the start that probably the only really fruitful discussion would be on the banking union. The principle agreement on common bank supervision had already been taken in June but negotiations on the exact implementation had slowed significantly recently with rising tensions between Eurozone countries on details and the possible starting date.

In a typical European compromise, which had something for everyone, European leaders last night called for “swift progress, with the objective of agreeing on the legislative framework by 1st of January 2013. Once this is agreed, the Single Supervisory Mechanism could probably be effectively operational in the course of 2013.” This compromise had the “1st of January 2013” that French president Hollande wanted and the “course of 2013” for German chancellor Merkel. Even if the countries can agree on a common legal framework before the end of the year, it would not become effective on 1st of January due to national implementation and ratification processes.

Details of the new bank supervision will still be worked out by finance ministers in the coming months. It seems clear that the ECB will play “a central part” and that all banks will fall under supervision. However, the phrase “the ECB should also be able to carry out supervision directly in a differentiated manner, meaning: using national supervisors in regular supervisory tasks as much as possible” shows that Germany succeeded in getting different treatments for some of its smaller banks and particularly the saving banks (Sparkassen).

The issue of direct bank recapitalization by the ESM once an effective supervisor has been established was also confirmed last night. However, operational criteria will still have to be developed which in our view implies that the issue of legacy assets will remain on the table. It looks unlikely that Germany, Finland and the Netherlands will give this one up during the upcoming negotiations.

The “vision-thing” on deeper integration of the monetary union will continue. Reading between the lines of Van Rompuy’s official statement, there does not seem to be a lot of agreement on anything. Strong emphasis on the measures already taken up to now is always a bad sign. It also shows that Germany’s latest idea of a super-Commissioner seems to be off the table. The only element explicitly mentioned last night by Van Rompuy was the issue of individual reform contracts. Other issues like a possible Eurozone budget or emergency fund are mentioned in code language and could still return in the next report to be presented at the EU summit in December.

All in all, the new single supervisory mechanism will come but direct bank recapitalization looks very unlikely any time soon. Moreover, all other big-picture issues for deeper Eurozone integration remain schematic. The integration pace remains slow. Last night’s marathon session again illustrated how cumbersome and difficult the European decision-making process is.

ZEW improves but still points to soft landing

Soft landing continues. The German ZEW index increased in October on the back of fading short-term tensions in the euro crisis. Nevertheless, the ZEW index which measures investors’ confidence still stands in negative territory, now -11.5, from -18.2 in September. At the same time, investors have become somewhat more negative on the current economic situation. The current assessment component dropped for the fifth consecutive month.


Of course, the ZEW index is not the most credible leading indicator for the German economy. Particularly not during the last years as there has been a clear decoupling of financial market sentiment and the real economy; at least in Germany. Still, today’s ZEW index adds to the evidence of a soft, not a hard, landing of the German economy. The negative impact of the never-ending euro crisis and, even more important, of the global economic cooling should become visible in the second half of the year.

One year ahead of the next federal elections, the government is facing is challenging economic and political environment. The current slowdown has hardly reached the average German, but this could change. If unemployment starts to increase again in the coming months, new wage increases would not materialise due to increased global competition, and more attention would be paid to long-term issues linked to ageing (as for example, the recent debate about pensioners’ poverty, an increased number of working poor and the widening gap between rich and poor). This mix could put not only the German economy but also the entire Eurozone at the next crossroads. It is a mix which could eventually give rise to more Euroscepticism in Germany and could force both government and opposition parties to put their cards on the table, making the elections also a campaign on the future of the Eurozone. Latest statements by chancellor Merkel and finance minister Schäuble - hinting on more time for Greece, more powers for the budget Commissioner, a Eurozone set-up for the European Parliament, Treaty changes and even contemplating stimulus measures for the German economy – gave already some idea of their cards at hand.

European Day of Imaginativeness

A week ahead of the next EU Summit, new ideas, proposals and suggestions come thick and fast. However, the traditional jumble of ideas looks unlikely to already lead to concrete conclusions next week.


It was an eventful day yesterday. Several senior officials presented ideas, proposals and suggestions on possible next steps in the euro crisis. IMF head Christine Lagarde was the first, saying that the IMF was striving to save Greece, but that the country may need two years more than planned to get back on its own feet. Of course, Lagarde stated only the obvious, namely that the recessions in Eurozone peripheral countries currently undermined the austerity efforts, leading to a downward spiral – and not only in Greece. However, just one week ahead of the next EU summit and still awaiting the Troika report on Greece, Lagarde’s comments come at a sensitive moment.

Over the last weeks, there had already been signals that the Eurozone (including Germany) could be willing to give Greece more time. More time, however, would eventually also cost more money. According to market reports, a two-year delay of the austerity measures could lead to a financing gap of between €15bn and €30bn. Generally speaking, more time for Greece could be “bought” by two main options: a third bailout package or debt forgiveness. Within these boundaries, options like lower interest rates on the Greek loans, front-loading of the current bailout package and fiddling around with medium-term growth forecasts or a combination of all options could still be on the agenda.

Interestingly, German Finance Minister Schaeuble reacted immediately after Lagarde’s comments at the IMF/World Bank meetings, saying that debt forgiveness was not an issue. However, he did not comment on the possibility of giving Greece more time with its adjustment programme.

While Christine Lagarde increased pressure on Eurozone policymakers, not only to solve the Greek issue but also to seriously tackle the issue of Eurozone integration, EU President Van Rompuy revealed more details of his building blocks for more integration. At a speech in Brussels, Van Rompuy reiterated the three main areas of further integration: financial affairs, budgetary matters and economic policies. According to Van Rompuy, the immediate priority was progress in the banking sector with the well known Single Supervisory Mechanism. However, even if Van Rompuy called the efforts for a Single Supervisory Mechanism a sprint in the midst of an EMU marathon, this sprint looks more like a 800m run than a 100m sprint as principle agreement is still overshadowed by disagreement on many details.

The newest kid in the Eurozone integration town is the so-called fiscal capacity. This is a new buzzword which simply means a new Eurozone crisis fund to help suffering countries to fulfill all adjustment requirements. Eventually, this could become something like an unemployment compensation mechanism or a social solidarity mechanism. However, size, purpose, conditions and funding source are still more than unclear. Another new idea, which eventually could be linked to financial incentives, is to put structural reforms into binding contracts. Elsewhere yesterday, EP president Martin Schulz suggested that the next European elections could already see transnational front-runners.

All in all, the debate continues. Next week’s summit will probably not (yet) lead to any substantial conclusions; neither on Greece nor on further integration. Yesterday’s events nicely illustrated that Europe remains a region of thinkers and poets. There is clearly no lack of ideas, sometimes only of concrete decisions.

Toffe Peer piekt te vroeg

Ik beken, ik ben competitief. Mijn vrouw klaagt er vaak over. Waarom geniet ik niet rustig van de natuur op een mooie wandeltocht? Te langzaam en te weinig adrenaline. Iemand moet de eerste, snelste en beste zijn. Vervelend dat mijn zoon genetisch belast is. Hij kreeg voor zijn verjaardag het voetbalcomputerspel FIFA13 en veegde mij meteen van het veld. Waarop ik stiekem de geheime trucs van het spel op internet opzocht. Na een week 'keiharde training' won ik afgelopen weekend eindelijk eens. Maar zal ik mijn eenmalige hoogtepunt kunnen verlengen? Waarschijnlijk wacht mij het lot van Peer Steinbrück, de uitdager van Angela Merkel voor het Duitse kanselierschap. Even de roes van de verrassingsaanval, maar toch te vroeg gepiekt.


Velen vinden Steinbrück, de derde musketier van het SPD-leiderstrio, een verademing in de politiek. Zeker vergeleken met Merkel. Onverbloemde uitspraken, soms controversieel. Zijn opmars in de peilingen verrast dan ook niet. Steinbrück profileert zich als financieel expert, die de banken hard aanpakt en de crisis beter oplost dan Merkel. Een gevaarlijke strategie, met zijn politiek verleden. Als minister van Financiën en minister-president van Noord-Rijnland-Westfalen was hij verantwoordelijk voor het toezicht op West LB, de grote Landesbank die faalde. Als minister van Financiën in de eerste regering-Merkel bezwoer hij na de val van Lehman Brothers dat de Duitse banken en de economie robuust waren. De crisis was Amerikaans. Maar even later moest Hypo Real Estate gered worden, en belandde de Duitse economie in een zware recessie.

Steinbrück mag geen gevaar zijn voor Merkel, tenzij hij zich in de eurocrisis van haar kan onderscheiden. Meer tijd voor Griekenland, meer politieke unie, een schulddelgingsfonds en, wie weet, eurobonds. Merkel kennende, zal zij die onderwerpen de komende maanden elegant overnemen, alsof ze altijd al van haar waren. Slecht nieuws voor Steinbrück, maar goed nieuws voor Europa. Door Steinbrücks komst zal Merkel iets meer in haar kaarten moeten laten kijken en een socialer gezicht krijgen.

Peer Steinbrück wacht in de politieke arena mogelijk hetzelfde lot als mij, thuis met FIFA13. Mijn zoon heeft namelijk iets van Merkel en heeft mijn moeizaam verworven trucs in een fractie van een seconde al afgekeken. Nu verlies ik weer. Binnen een jaar heeft Steinbrück misschien tijd om met mij een partijtje FIFA13 te spelen.

Deze column verscheen vandaag in het Belgische dagblad "De Tijd".

German IP drops in August

Limited slowdown. German industrial production dropped by 0.5% MoM in August, providing further evidence of the gradual slowing of the economy. In annual growth terms, industrial production was up by 0.8%. The drop was equally spread across most sectors. Only the production of energy and consumer goods increased in August. Production in the construction sector saw a drop by 2.8% MoM.

Earlier today, German exports surprised positively and increased by 2.4% MoM in August. As imports only increased by 0.3% MoM, the seasonally-adjusted trade balance widened to 18.3bn euro, from 16.3bn euro in July. As so often, exports to non-European countries were the most important driver. Exports to non-European countries were up by 13% YoY and the share of exports to other Eurozone countries is constantly dropping. In August, only 33% of all German exports went to Eurozone peers.

The available hard data still illustrates a relative crisis-resistance of the German economy. The sharp dop of almost all confidence indicators is not yet reflected in the data. Although a contraction of the economy in Q3 is still possible, strong exports and stable consumption should make any contraction a mild one. Unless, of course, things worsened dramatically in August.

Looking ahead, however, the soft landing of the German economy should continue. The industry’s safety net of low inventories and richly filled order books has become very thin over the summer months. Inventories are still relatively low, at least when compared with the start of earlier recessions. However, the currently widening differences between increasing inventories and dropping orders at hand is similar to the trends observed in 2001 and 2008.

Today’s data illustrate the relative strength of the German economy. However, the data also give the impression that the German industry is in the middle of a clearance sale. A mix of surging exports, dropping orders and declining industrial production does not bode well for the future.

Hase und Igel in Europa

Letter from Brussels – Hase und Igel in Europa

Man hat sich mittlerweile daran gewöhnt, dass die EZB die Feuerwehr in der Euro-Krise ist. Etliche Male hat sie für wenig entscheidungsfreudige Politiker im Wettlauf gegen die Finanzmärkte die Kohlen aus dem Feuer geholt. Aber jetzt, wo die Gefahr eines schnellen Ende des Euroraums erst einmal gebannt ist, entwickelt sich ein ganz neuer Wettlauf: eine europäische Version von Hase und Igel.

Die EZB mit Mario Draghi ist ganz deutlich der Hase. Am Donnerstag hat Draghi noch einmal unterstrichen, dass die EZB weiterhin bereit steht, notleidenden Staaten mit Anleihekäufen unter die Arme zu greifen, wenn sich diese Staaten unter den Rettungsschirm begeben. Kurzfristig ist der Euro damit gerettet, aber das langfristige Überleben – und das weiß auch Draghi - kann nur die Politik garantieren.

Die europäische Politik ruht sich jedoch zu häufig im Schatten des Aktionismus der EZB aus. Nach jeder Großtat der EZB scheint das Tempo bei der Durchführung wichtiger nationaler und europäischer Reformen ins Stocken zu geraten. Letztes Beispiel ist der große Masterplan von EU Ratspräsident Van Rompuy. Bis zum Ende des Jahres soll ein detaillierter Fahrplan für mehr Integration stehen. Bisher sind diese Pläne jedoch nur ein Sammelsurium an Ideen. Bankenunion, zentraler Nothaushalt, mehr Koordination. Wichtige Elemente werden angedeutet, bleiben jedoch sehr vage und hinter jeder Idee verstecktsich eine Vielfalt an Kontroversen zwischen Euroländern. Der Masterplan ist im Augenblick nur eine Wunschliste.

Anders als im Märchen laufen Hase und Igel in Europa nicht gegen- sondern miteinander. Es ist der gemeinsame Wettlauf für das Überleben der Währungsunion. Der Hase hat dabei deutlich seine Belastungsgrenze erreicht. Der Igel muss sich ein bisschen anstrengen, dass den Hasen nicht das gleiche Schicksal ereilt wie im Märchen. Da bricht er nämlich zusammen und stirbt.

Dieser Artikel erschien eher in der Euro am Sonntag in der Rubrik "Letter from..."

 

Twiddling thumbs in Ljubljana

At today’s meeting in Slovenia, the ECB left interest rates unchanged. Next steps in the Eurozone crisis will again have to come from governments.


The ECB’s macro-economic assessment was almost a verbatim copy of last month. As regards economic growth, the ECB just confirmed what everyone knows: “economic growth in the euro area is expected to remain weak”. The economy is expected “to recover only very gradually”. The sentence that growth should “remain dampened by the necessary process of balance sheet adjustment in the financial and non-financial sectors, the existence of high unemployment and an uneven global recovery” indicates that the ECB is prepared for a long period of below-trend growth in the Eurozone. As regards inflation, the latest increase in headline inflation was, according to the ECB, not a threat to medium-term price stability. Risks to price stability remained balanced. Against this still dire economic outlook, a rate cut in the coming months is still possible, although the ECB currently rather seems to be banking on the non-conditional measures to do the job.

As expected, a large part of the press conference was again dedicated to the OMT programme and some clarifications. ECB president Draghi was obviously satisfied with the positive market reaction in September. He reiterated that the “euro is irreversible”. Besides the well-known repetitions of the conditionality principle for the OMT, Draghi mentioned two new details of the OMT: First, on the issue of whether countries already in a bailout programme could also be subject of bond purchases, Draghi said that the OMT could not be applied “until full market access will be obtained”. This was slightly different from last month’s wording which said “[OMT] may also be considered for Member States currently under a macroeconomic adjustment programme when they will be regaining bond market access.” It remains unclear whether the ECB would be willing to start the OMT for Ireland and, particularly, Portugal. Second, according to Draghi the ECB would not purchase bonds under the OMT programme while a country is under review. Given the length of earlier review periods, this clearly decreases chances that Greece could ever be subject of OMT bond purchases.

Today’s ECB press conference was one of the many moments in which the ECB tried to play the ball back to politicians. Draghi ducked the question on legacy assets in future bank recapitalisations by the ESM and also repeated his calls upon governments to continue implementing austerity measures and structural reforms. Interestingly, Draghi was less outspoken on the bigger picture issue of further Eurozone integration. It seems as if Draghi has dropped the “vision thing” he still had been pushing before the summer. A clear sign that Draghi has become more realistic, acknowledging that implementing some elements of a later vision thing in the coming months would already be an enormous achievement.

All in all, the ECB realises that there is hardly anything they can do at this juncture. With the OMT, the ECB has tackled and exorcised fears of an imminent Eurozone break-up. More monetary stimulus, standard or non-standard, to support growth is still in the offing but the fundamental work has to be done by governments. For the time being, the ECB can lean back, watch and twiddle thumbs.

Ifo shows that German companies remain sceptical about Mario's economic magic

The downward slide continues. After an encouraging PMI reading last week, today’s Ifo could not follow up. The leading German confidence indicator continued its recent downward trend in September, dropping to 101.4, from 102.3 in August. This is the fifth consecutive drop, bringing the Ifo index to its lowest level since February 2010. With a drop to 93.2, from 94.2 in August, the expectation component is clearly in recessionary territory. The only upside in today’s Ifo report is that the current assessment component is still relatively high at 110.3.


Today’s Ifo index shows that German companies remain sceptical about the economic impact of Mario Draghi’s magic. Despite fears of a looming Eurozone break-up clearly fading away, German businesses are downscaling their expectations. It looks as if German businesses realise that keeping the Eurozone alive alone will not return growth quickly. The structural adjustments in Germany’s Eurozone trading partners will take time and will dampen demand for German products.

Looking further ahead, German growth should be affected negatively by at least three major factors: i) the slowdown of the global economy and the ongoing euro crisis, weighing on exports; ii) the worsening of the labour market, hampering domestic demand; and iii) the “perverse euro rescue factor”. Particularly the latter is an interesting twist. Throughout the euro crisis, the German economy has been benefitting from some positive side-effects, ie a weaker euro and very low interest rates. In the second quarter, these positive effects were already partly offset by weak demand from other Eurozone countries. Now, with increased rescue efforts, this balance could turn again. In the short run, a stronger euro and somewhat higher interest rates should dampen German growth but in the long run the positive impact from a stabilised Eurozone should prevail.

Today’s Ifo confirms our view that the German economy could see a contraction in the third quarter. Up to now, the real economy held up rather well, despite gradually deteriorating confidence indicators. Even the third quarter started on a very positive note. While industrial production and new orders rebounded in July, only retail sales were down, illustrating the relative robustness of the economy. However, it is doubtful that the decoupling between hard and soft indicators can last for long.

ZEW points to soft landing of German economy

Soft landing continues. The German ZEW index increased in September on the back of the latest stock market rally and calm in the euro crisis. The ZEW index which measures investors’ confidence now stands at -18.2, from -25.5 in August; the first increase since April. However, the ZEW index is still far below its historical average. At the same time, investors have become somewhat more negative on the current economic situation. The current assessment component dropped to its lowest level since June 2010.


The relative calm in the euro crisis since the beginning of August seems to have comforted financial analysts. The German stock market has increased by more than 10% and fears about a looming break-up of the Eurozone have also disappeared. However, at the same time, the relative calm in the euro crisis has also created some adverse effects for the German economy. The euro exchange rate appreciated some 8% against the US dollar and oil prices increased by almost 10%. As a consequence, and somewhat ironic, the tail winds for the German economy, caused by the crisis, are fading away.

The German economy stands at another crossroads. After a strong first half, all sentiment indicators are pointing to an increased recession risk. However, the significant drop of sentiment indicators over the last months is not matched by the real economy. The third quarter, for example, also started on a very positive note. While industrial production and new orders rebounded in July, only retail sales were down, illustrating the relative robustness of the economy. However, it is doubtful that the decoupling between hard and soft indicators can last for long.

Looking ahead, weaker demand for German exports, both from Eurozone and non-Eurozone countries, should increasingly dampen growth in the period ahead. Moreover, with first signs of the labour market cooling off, private consumption should also remain moderate. Only domestic investments and, above all, construction seem to remain relatively crisis-resistant.

After more than a 3-year stretch of almost non-stop growth and an impressive average quarterly growth rate of 0.7% QoQ, the German economy s finally approaching for a landing. A soft, and not a hard, landing.

Enjoying the silence

It was the week of relief. The German Constitutional Court’s ruling on the ESM and the Dutch elections were a blow to eurosceptics, pushing EMU break-up speculations away and leading to positive reactions on financial markets. The meeting of Eurozone finance ministers in Cyprus and yesterday’s comments by German chancellor Merkel, however, showed that several important issues still remain unsolved.

In the short term, Spain and Greece should get the most attention. Many market participants expect Spain to be the next one in line to ask for a bailout, even if it is a bailout light, and consequently be the first country to fall under the ECB’s new OMT programme. So far, however, no decision has been taken and it increasingly looks as if nothing will happen before the ESM has become operational (expected date 8 October) and the regional elections in Spain (21 October). By then, the Troika should finally have presented its report on Greece. There seems to be a growing consensus among Eurozone policymakers to give Greece more time as long as it does not cost more money. Whether this is feasible or pure magic remains to be seen. Yesterday, German chancellor Merkel again put forth her hand to Greece, stressing that she wanted Greece to stay in the Eurozone and that Germany was ready to help. It is up to Greece to grab the hand.

Unsolved short-term issues are not the only unfinished business in the Eurozone. The biggest work in progress – steps towards further integration – also proves to be more cumbersome and difficult than some euro-optimists might have thought. The first building block towards further integration, a banking union, was presented last week, but so far all Eurozone member states only embrace the principle of Eurozone bank supervision but largely disagree on the details. Over the last couple of days, the German government has tried to slow down the pace of a fully-fledged Eurozone bank supervision. Given the strict German opposition, a joint Eurozone deposit insurance scheme has more or less been postponed until a very distant future. More generally speaking, the longer the negotiations on the entire building blocks for a “genuine economic and monetary union” will last, the more difficult it could be to get Germany on board. Why? It will be election time in Germany next year.

The latest events have bought more time for the Eurozone. However, neither the ECB’s announced OMT programme, nor the German Court’s ruling on the ESM nor the Dutch elections have improved the fundamental situation of Eurozone economies. Spanish unemployment remains high, Italy and France still suffer from a lack of competitiveness and Greek debt has not become any more sustainable. Moreover, the roadmap towards further Eurozone integration remains a bit vague and there are obviously still diverging views. In sum, still a lot of unfinished work. It would be a false conclusion to think that the Eurozone has suddenly become a hunky dory country in which they play Depeche Mode all day long.

Het is nog wat te vroeg voor de Ode an die Freude

Het leek wel alsof de hele wereld gisteren naar Karlsruhe keek. Het Duitse hof is de voorbije jaren uitgegroeid tot een belangrijke macht in Duitsland. Misschien zelfs de belangrijkste macht. In ieder geval is het zo machtig dat het al vaker belangrijke politieke en wetsvoorstellen van de regering-Merkel heeft teruggestuurd en afgewezen. De angst dat het Hof dat nu ook met de Europese reddingsplannen zou doen, heerste al weken. Die angst bleek gelukkig onterecht. Het uiteindelijke oordeel was in feite veel minder angstaanjagend dan verwacht. Het lijkt bijna alsof het Hof slapper is geworden. Het kwam met het algemeen verwachte 'ja, maar...', maar de 'maar' was veel minder sterk dan verwacht. In feite zijn het niet meer dan twee formaliteiten die nog nodig zijn voordat de Duitse handtekening onder het ESM-verdrag kan worden gezet. Het Hof eist dat de Duitse bijdrage aan het reddingsfonds ESM niet hoger mag zijn dan de in de ESM-statuten oorspronkelijk vastgelegde 190 miljard euro. Dat moet nog in een internationale wet worden gegoten.

Interessant is dat het Hof geen definitief plafond heeft gevraagd op de grootte van het ESM. Ook na gisteren kan het bestedingsvolume van het ESM nog steeds worden verhoogd. Alleen moet het worden goedgekeurd door het Duitse parlement. Daarmee heeft de Duitse vertegenwoordiger in het ESM een de facto vetorecht. Bovendien eist het Hof dat de immuniteit en de zwijgplicht van ESM-bestuurders wordt afgezwakt. Het Duitse parlement zal regelmatig moeten worden geïnformeerd over alles wat het ESM doet. Zeg nu zelf, er waren in het verleden al veel fellere en meer spraakmakende oordelen van het Hof. Horrorscenario's waarin het Hof een permanent recht op inspraak en inzage voor het parlement zou eisen, werden niet bewaarheid. Het lijkt bijna alsof het Hof slapper is geworden. Of merkt nu de tweede, ooit zo heilige, Duitse instelling dat het de Europese trein niet kan stoppen? Voor Europa is dat duidelijk goed nieuws. De eurozone beschikt nu eindelijk over een geladen bazooka. Een bazooka die bestaat uit 500 miljard euro leencapaciteit van het ESM en de mogelijke, zelfs ongelimiteerde, obligatieaankopen van de ECB. De crisis is daarmee echter nog niet opgelost. De fundamentele problemen blijven. Noch de ECB, noch de uitspraak van het Hof verlaagt de werkloosheid in Spanje, verhoogt de concurrentiekracht van de Franse en de Italiaanse economie of verbetert de houdbaarheid van de Griekse overheidsfinanciën. Ook voor Angela Merkel is de uitspraak van gisteren goed nieuws. Het is een duidelijk duwtje in de rug voor haar Europese politiek, die er een is van voorwaardelijke integratie. Tegelijkertijd is de uitspraak van gisteren echter ook een waarschuwing. Hoewel het Hof op het eerste gezicht milder is geworden, wordt tussen de regels nog steeds duidelijk gemaakt dat er grenzen zijn aan meer integratie in de eurozone. Het Hof legt nog steeds heel veel nadruk op de begrotingsverantwoordelijkheid van het Duitse parlement, houdt niet van onbeperkte financiële steun voor andere landen en waakt over de democratische invloed op Europese beslissingen.

Dit maakt heel duidelijk dat verregaande integratie, zoals bijvoorbeeld gisteren door Commissievoorzitter José Manuel Barroso geëist, met de huidige Duitse grondwet en het Duitse Hof zeer moeilijk zal worden. Een politieke unie of een begrotingsunie lijken zeer onwaarschijnlijk. De rode lijn van de rode rechters uit Karlsruhe mag dan al iets dunner zijn geworden, ze maakt het leven van Merkel niet makkelijker. Een groeiend aantal Duitsers kijkt met een raar gevoel in de onderbuik naar Europa. Ongeveer 37.000 mensen hadden de klacht waar het Hof zich gisteren over uitsprak mee ondertekend, een kleine meerderheid van de hele Duitse bevolking had gehoopt op een 'nee' van het Hof en een ruime meerderheid is tegen meer financiële hulp voor Griekenland. Het zal schipperen blijven tussen kleine stappen richting integratie en stoere taal voor de Beierse kroegbezoekers. Zo'n strategie kan nog een tijd goed gaan, maar de vraag is hoe lang Merkel die spagaat vol kan houden. Uiteindelijk zal de enige weg tot meer eurozone-integratie voor Duitsland via een referendum moeten passeren. Dit is de enige formele manier om de Duitse grondwet aan te passen. De opluchting na gisteren is groot. Eventjes leek het zelfs alsof in de Brusselse gebouwen van de Europese Commissie de 'Ode an die Freude' werd gespeeld. Dat is misschien iets te voorbarig. De crisis is nog niet opgelost. Er is alleen weer meer tijd gekocht. Anders gezegd: de monetaire en juridische autoriteiten van de eurozone hebben hun taken vervuld en hebben van hun kant alles gedaan om de monetaire unie te laten overleven. Het lot van de eurozone ligt nu volledig in de handen van de landen en politici zelf. Alleen als ze hun huiswerk maken, zal de euro overleven. Beethoven moet nog even wachten.

Dit stuk verscheen vandaag in het Belgische dagblad "De Tijd"

German Court says "yes, but..." to ESM

More relief for the Eurozone. The German Constitutional Court ruled in favour of the ESM. The strings attached to the Court’s ‘yes’ seem softer than in past verdicts.

In its long-awaited ruling, the German Constitutional Court yesterday gave the green light for the ESM and the fiscal compact. The Court said “yes, but…”, adding some conditions to the German approval. As expected, all emphasis was on preventing unlimited financial liability for German tax payers and ensuring that the German parliament remains responsible for the budget. The “but’s” in the Court’s verdict are small but significant.

The Court ruled that German liabilities have to be capped at the current contribution of 190bn euro. This cap should be mandatory under international law. Any future increase of the ESM’s capacity would require approval by the German parliament. Moreover, the Court ruled that the clauses on immunity and professional secrecy for Board members of the ESM should not apply for the information flow to the German parliament. This is an indirect accountability clause. As a consequence, German president Gauck should now be able to sign the Treaty once the cap on the German contribution has been laid down in international law.

At least at first glance, the Court’s ruling surprises somewhat by the absence of stricter conditions. The Court did not ask for definite limits and did not identify violations of the democratic principle.

Within less than a week, the Eurozone has finally received its long sought-after impressive bazooka: conditional but unlimited ECB bond purchases and the ESM which provides a new fresh lending capacity of 500bn euro. Of course, it is a bazooka with potential risks and side-effects. As a result, Eurozone governments have now received more time to do their homework, implement reforms and austerity measures. Today’s ruling has not solved the crisis, neither has last week’s ECB decision. However, after monetary and legal authorities have done their part, the destiny of the Eurozone is now exclusively in the hands of governments.