Column: De geur van emotie

Na een rommelige start loopt het bij Die Mannschaft in Frankrijk weer op rolletjes. Bondscoach Löw heeft na twee mindere wedstrijden geluisterd naar de 82 miljoen bondscoaches en twee basisspelers uitgewisseld. Sindsdien draait de ploeg gesmeerd. Wel jammer alleen dat morgen al de gevreesde aartsvijand Italië op Die Mannschaft wacht. Nog nooit heeft Duitsland bij een toernooi van Italië gewonnen. De angst voor een vroegtijdig vertrek uit Frankrijk is groot bij supporters en amateur coaches. Maar een coole Löw heeft een heel land gerustgesteld, door relaxed een espresso slurpend uit te leggen, dat er geen Italië-trauma is en dat Die Mannschaft gewoon gaat winnen. Wat een contrast met Angela Merkel! Voordat Angela Merkel deze week naar Brussel vertrok, legde ze in het Duitse parlement nog even uit wat de Duitse positie is rondom de Brexit. Het was een typisch Merkel optreden: zakelijk, terughoudend, niets vastleggend, geen drama. Een goede beschrijving van de stand van zaken en een onderkoelde analyse. Een soort van ‘Brexit on the rocks’, ‘stirred, not shaken’. Dit beleid, deze stijl, hebben Merkel tot de machtigste vrouw in Europa gemaakt. Zij is zo door de financiële, euro- en Griekenland crisis gerold. Maar zelfs al is business as usual in onrustige tijden enorm rust gevend, het zal onvoldoende zijn om Europa uit deze - niet meer en niet minder existentiële - crisis, te leiden. Hoe had het anders gekund? Merkel relaxed met een espresso of eens met een gepassioneerde speech, die de jonge generatie in vuur en vlam zet. Een speech, met virale hit en ‘like’ potentie. Een speech met een duidelijke boodschap, het liefst met een duidelijke visie. Zo’n speech was in de huidige omstandigheden niet moeilijk geweest. Maar drie punten zijn er nodig. Een, maak duidelijk dat je er alles zult doen om de Britten zo snel mogelijk uit de EU te zetten. In alle vriendschap. Maar een gijzeling van de EU van– meer dan - twee jaar afwachten en onderhandelen is niet acceptabel. Twee, het is tijd voor een nieuw begin voor Europa. Geen discussie meer over meer óf minder Europa, maar een discussie over meer én minder. Een open, eerlijke en emotionele discussie over op welke onderwerpen Europa meer integratie nodig heeft en waar minder. Een niet moraliserende discussie, waar geen goed of slecht bestaat en waarbij het einde open is. Tenslotte heeft Europa een “man on the moon” project nodig. Waarmee kan de EU weer de harten laat raken? Een sociaal Europa? Een welvarend Europa? Een innovatief Europa of een eindelijk weer groeiend Europa door grensoverschrijdende investeringen? Maar vooral, een doel met emotie. Ook verliest Die Mannschaft morgen van Italië, een coole Jogi Löw heeft heel Duitsland wel even laten dromen. Wat Jogi ook doet, het in zijn broek grabbelen of relaxed het Duitse winconcept uitleggen, hij lokt emotie uit. Iets meer Löw bij Merkel zou heel Europa goed doen. Deze column verscheen vandaag in het Belgische dagblad "De Tijd"

Brexit - ein schrecklich historischer Tag

Für einen bekennenden Europäer wie mich aber auch ein schrecklicher Tag. Auch wenn das offizielle Endergebnis noch nicht da ist, scheint das Brexit-Lager uneinholbar vorne zu liegen. Zusammen mit den Kollegen aus London werden wir am frühen Vormittag eine längere Research Note veröffentlichen. Bevor diese kommt, hier schon eine kurze Stellungnahme. Es sieht so aus, als ob Europas schlimmster Alptraum Wahrheit geworden ist. Sollte sich das Ergebnis bewahrheiten, werden die wirtschaftlichen und politischen Folgen noch lange zu fühlen sein. Die erste Marktreaktion gibt schon einen guten Vorgeschmack. Es steht ein langer, schwieriger und dreckiger Scheidungsprozess an. Es wird nicht nur schwierige Verhandlungen mit Großbritannien geben. Europa wird sich auch mit sich selbst beschäftigen müssen. Nach dem heutigen Tag wird Europa nie mehr so sein wie bisher. Der Geist des Populismus und antieuropäischer Haltungen ist aus der Flasche entwichen und wird nur sehr schwer einzufangen sein. Europa befindet sich in einer existentiellen, in einer Identitätskrise. Nach dem Brexit ist vor der nächsten Exit-Gefahr. Schon jetzt gibt es Spekulationen über mögliche EU-Abstimmungen in Frankreich und den Niederlanden; zwei Gründungsmitglieder der EU. Die Wahrscheinlichkeit einer schleichenden Desintegration der EU und auch der Eurozone nimmt zu. Die Gefahr, dass die nächste Generation, unsere Kinder, diese Scherben aufräumen muss, auch. Europa muss die Kritik und Skepsis in Teilen der Bevölkerung ernst nehmen. Die aktuelle Europa-Diskussion dreht sich fast immer nur um ‚mehr oder weniger’ Europa. Europa braucht eine neue differenzierte Diskussion über die Zukunft Europas. Eine Diskussion, in der positive Alternativen aufgezeigt und die Ängste ernst genommen werden. Eine Diskussion, die nicht sich nicht mehr um ‚mehr oder weniger’ drehen sollte, sondern um ‚mehr und weniger’. So könnte ein historisch schrecklicher Tag irgendwann vielleicht doch einmal als Anfang eines besseren Europas in den Geschichtsbüchern stehen. Das ist aber vielleicht nur der Traum eines verträumten Europäers.

Another 'yes but...' from Karlsruhe

The German Constitutional Court just released its final verdict in the case against the ECB’s OMT programme. The Court rejects the complaint but does only give half-green light for OMT. < Summary Line Germany’s Constitutional Court just released its ruling in the case against the ECB’s OMT programme. The Court officially rejects the complaint against OMT. However, the details of the Court’s ruling suggest that rejecting a complaint does not necessarily mean that the Court embraces OMT. Although we are no legal experts, the bottom line of the Court’s ruling seem to be: the Court grudgingly acknowledges the ECB’s independence on monetary policy matters and that European legal matters do not fall into the responsibility of the German Court. Moreover, the Bundesbank can only participate in the OMT under certain conditions. Remember, the OMT programme has been the ECB’s strongest weapon during the peak times of the euro crisis and it is a programme which has never cost a single euro. The OMT has been the fundament under Mario Draghi’s famous “whatever it takes” words. It is the programme with which the ECB announced to buy government bonds of crisis-stressed countries under certain conditions, as e.g. that the country needs be in a bailout programme. The “whatever it takes” words combined with OMT were a game changer during the darkest times of the euro crisis, giving financial markets the impression that the ECB could be a last lender of resort for the Eurozone. Consequently, spreads between government bond yields narrowed again. But the legality of the programme has been challenged by 37,000 German plaintiffs who argue that OMT violates the EU’s prohibition on the “monetary financing” of governments. Last year, the German Court had asked the European Court of Justice for legal advice (which is different from delegating the entire case to the European level). The ECJ’s advice was clearly supportive for the ECB. With today’s final ruling, the German Constitutional Court confirms the ECJ’s ruling but also indirectly criticizes the ECJ for not having investigated deep enough whether ECB’s own assessment on need for OMT was justified. In its ruling, the German Court states that it took the ECB’s own assessment for granted. While the German Court has rejected the case against the OMT, it still has put conditions on the Bundesbank’s participation. Namely: bond purchases should be limited in volume and should not be announced beforehand. Moreover, purchased bonds should only held until maturity in exceptional cases. The entire case has not only brought German opposition against the ECB’s non-standard monetary policy measures into court rooms, it has also been a nice illustration of the ongoing struggle and difficulties in Europe and the Eurozone to delegate powers and responsibility from the national to the European level. Similar to the British referendum in two days from now, the German Court’s ruling had the potential to shake the European Union or at least the monetary union to its very foundations. Fortunately, it did not. This ruling on a programme which has never ever been used gives the ECB enough room and backing to continue with QE and to stand ready to eventually fight any emergencies on financial markets in case of a Brexit-vote on Friday morning. At the same time, however, the ruling was not convincing or strict enough that it will stop German opposition against current ECB policies or prevent new lawsuits against the ECB. It was a typical “yes, but…” ruling from Karlsruhe. Some could even be tempted to call the Court a sore loser who is still struggling to find a balance between European and national interests and powers. Clearly not the only one in Europe currently.

German economy surges in Q1

The German economy grew by 0.7% QoQ in the first quarter of 2016, from 0.3% QoQ in the final quarter of 2015. The strongest quarterly performance since the first quarter of 2014. On the year, GDP was up by 1.6% (in working day adjusted terms). The GDP components will only be released at the end of the month but judging from the available monthly data and the statistical agency’s press release, growth in the first quarter was mainly driven by domestic factors. Particularly, activity in the construction sector boomed on the back of the mild winter weather. The latest recovery of the German economy lasts already for seven quarters. Without the small stagnation in the second quarter of 2014, the economy could now look back at twelve consecutive quarters of economic growth. Very impressive. Moreover, during this lucky streak, the growth drivers have changed. Initially boosted by strong industrial production and exports, the economy is currently much more driven by private consumption, construction and a bit of exports. The industrial backbone has weakened significantly. Looking ahead, at least in the near term, this new growth mix should further support growth. Against this background of a long and strong growth performance, it does not really come as a surprise that many German policymakers have become complacent, some even big-headed, or at least not being very open for criticism or proposals to further improve the economic performance. In fact, today’s data provide new ammunition for the proponents of ‘there is no need for change’. Such an attitude stands in sharp contrast with the latest round of international pressure on Germany to implement some change. After criticism on Germany’s high trade surplus and rather naive recommendations to reduce the deficit, it was then a call to increase domestic wages and investments and has now become a clear disclosure of Germany’s lack of structural reforms. First, there was the OECD calling for tax reductions. Now, very recently it has been the IMF proposing infrastructure investments and new reforms in the labour market and the pension system. While the first two phases of international criticism were easily shaken off by many German policymakers, the latest phase is actually hitting the bull’s eye. It hits the German economic establishment in the heart as they have always been the most vocal advocates of structural reforms elsewhere. Now structural reforms are coming home and it will be interesting to watch what the official reaction to the latest IMF proposals will be. After all, it has always been the German government asking for IMF involvement in the euro crisis management, due to the IMF’s uncontested expertise. However, roughly one year ahead of the next national elections, there is the risk that no new reforms will be implemented before the elections. If true, it could eventually turn out be a missed unique opportunity. Implementing new reforms in good times is always easier then implementing them in bad times. Unfortunately, it almost never happens. Today’s data are another sign of Germany’s economic strength. At least at first glance. The economy defied the financial market turmoil at the start of the year as well as the Chinese slowdown. Even if many Germans don’t want to hear it, strong domestic activity is also the result of the ECB’s loose monetary policy. At second glance, however, the strong growth performance also shows what currently is the biggest risk for the German economy: complacency. Ironically, with growth driven by construction and consumption and a government which is reluctant to follow up on international advice to implement structural reforms, the German economy has almost started to resemble peripheral characteristics.

Weak revival of German exports

Some relief but no reason to cheer. February trade data just showed that the German export sector still struggles to gain momentum. After four declines in the last six months, German exports increased by 1.3% MoM in February. As imports only increased by 0.4% MoM, from 1.3% MoM in January, the seasonally-adjusted trade balance improved to 20.3 bn euro, from 13.4 bn in January. German exports have lost parts of their magic and strength. In the past always a reliable growth engine, net exports on average did not contribute anything to quarterly GDP growth over the last two years. In 2015, net exports even were a drag on growth. So much about export world champion. The weaker euro was only partly able to cushion the negative impact from weaker external demand, particularly from China and oil-exporting countries. The negative impact from low oil prices on the German economy through weaker exports is mainly felt in the manufacturing sector. Looking ahead, it does not look as if exports would quickly return as a powerful growth engine. Foreign orders have dropped by more than 7% since last summer, further reflecting a broader weakness in Germany’s main trading partners. Moreover, the tailwinds of the weak currency are also fading away. Since late-November, the euro has appreciated by more than 6 ½% vis-à-vis the US dollar. At the same time, the trade-weighted exchange rate appreciated by some 5%. This strengthening of the exchange rate should also affect German exports in the coming months. With strong consumption, a booming construction sector but stagnating industry and exports as well as a reprimand from international institutions to finally step up reform efforts, the Eurozone’s largest economy is losing some of its luster. Admittedly, it is a bit tongue in cheek, but after this week’s macro data, one could even start to think the Eurozone periphery these days starts in Germany.

German new orders disappoint in February

Lost in stagnation. German new orders dropped sharply in February, adding to evidence of continued stagnation in the German industry. New orders declined by 1.2% MoM, from an upwardly revised increase of 0.5% MoM in dropped in January. On the year, new orders were up by 0.5%. The last months have not been easy for the German industry. Since May last year, new orders have dropped in six out of ten months. Interestingly, the February drop was driven by falling foreign demand (-2.7% MoM), whole domestic demand picked up somewhat after a two-months slump. While the German industry is struggling to gain momentum, the Eurozone’s most favorite crisis is back. Leaked minutes from an internal IMF discussion and the arrival of Greece’s creditors in Athens is a good reminder that the Greek crisis could easily escalate again and lead to another hot Greek summer in the Eurozone. The discussion on new financing gaps, the lack of structural reforms and debt restructurings or forgiveness sounds too familiar. In Germany, politicians yesterday reacted with the typical reflex of “there is no need for debt forgiveness in Greece”. In our view, focusing only on a possible debt restructuring does not capture the entire problem. In the end, the lack of growth in Greece and other Eurozone countries could easily put new pressure on the German government to reassess its entire crisis management. Eventually it could come down to a decision between a growth stimulus for Greece, debt restructuring or Grexit. We don’t dare to tell which option the German government would choose. Against the background of potential new uncertainties, the outlook for the German industry remains anything but rosy. Product expectations have already come down significantly since the summer and are now at the lowest level since March 2013. At the same time, order books have narrowed. The only encouraging signal from the German industry is the latest drop in inventories since the beginning of the year. All in all, today’s new orders were another piece of evidence that the German industry is treading water, as it is suffering from a cooling of global activity.

German Ifo surprises in March

It’s hard to comment on economic sentiment indicators, while watching horrible scenes from my former home city. What initially was supposed to be a German economic sentiment day, with releases of the three most prominent confidence indicators on one day, has all of a sudden and tragically become a sad day for Europe. Still, let’s give it a try to return to economics for a minute. Germany’s most prominent indicator, the just released Ifo index, rebounded in March to 106.7, from 105.7 in February. Both, the current assessment and the expectations component increased in March; showing that German businesses seem to have shaken off fears of long-lasting global slowdown. While commentators are currently heatedly discussing the risks of a wide-spread global slowdown, the German economy shows solid resistance. While soft indicators have disappointed in recent months, hard data have rebounded at the start of the year. Actually, hard data – except for exports - in January has actually surprised to the upside and industrial production, construction, car registrations and retail sales were actually higher than in the final quarter of 2015. At the same time, the continued strength of the service sector seems to make up for a more structural slowdown in industrial production in the wake of weaker demand from too many important export destinations. Today’s Ifo index adds to increased optimism. The Ifo was the second German sentiment indicator released today. Earlier this morning, the PMI remained unchanged at 54.1, pointing to continued growth in the first quarter. At 11am CET, the ZEW will close this German sentiment day, shedding some first light on how investors assess the ECB’s latest monetary policy action and whether or not they still believe in Mario Draghi’s magic. On any ordinary day, today’s German sentiment data would have been a reason for moderate optimism. Despite ongoing warnings and fears of a derailing of the global economy, the Eurozone’s largest economy is still going strongly. However, this is definitely and sadly not an ordinary day anymore.

The loss of innocence

Yesterday’s three regional elections all had their national and regional stories to tell. The only real common denominator in all three states is the rise of the Alternative for Germany (AfD). In the end, the results of the three regional elections in Germany told many stories and had many different outcomes. And in fact, all traditional parties had some painful defeats but also some encouraging results. Angela Merkel’s CDU, for example, suffered strong losses in Rhineland Palatinate, but remained relatively stable in Baden Wuerttemberg and Saxony-Anhalt. Depending on the upcoming coalition negotiations, Merkel’s CDU could still manage to enter the government in all three regional states (up to now, the CDU was only represented in one out of the three governments). At the same time, the social-democratic junior coalition partner in the federal government, the SPD, suffered painful defeats in Saxony-Anhalt and Baden-Wurttemberg, but gained in Rhineland-Palatinate and came in as the strongest party. Finally, the Green Party celebrated a unique victory in Baden-Wurttemberg, being the strongest party for the first time ever in a regional state, but at the same time recorded disappointing results in the other two states. Not surprisingly, the only party which could enjoy strong gains in all three states was the AfD; at least for the time being Germany’s new anti-euro, anti-immigration party. While the AfD came in at lower double-digit numbers in Rhineland-Palatinate (around 12%) and Baden-Wuerttemberg (around 15% of all votes), it gained almost 25% of all votes in Saxony-Anhalt. As indicated by earlier polls, around three-fourths of all AfD voters favour the party to voice their own protest rather than due to better expertise or political platforms. In the coming days, coalition negotiations in all three states will start. At the same time, national politicians will try to draw their lessons from the elections for national topics and politics. However, the latter will not be that easy as the election results actually only have one common denominator: the emergence of the populist AfD. Furthermore, other interpretations like the elections were a protest vote against Angela Merkel’s stance in the refugee crisis are too short-sighted. The fact that Merkel’s CDU remained relatively stable in two states and that in Rhineland-Palatinate and Baden-Wuerttemberg two politicians, who actually stood closer to Merkel in the refugee crisis than many in her own party, suggests that the regional votes were not only on Merkel. In our view, the elections showed a general trend towards protest votes against the established parties. All in all, yesterday’s election results will not significantly alter Merkel’s stance in the refugee crisis. In fact, Merkel – very silently and gradually – has already adjusted the stance towards more stricter asylum and immigration rules. The results were not strong and clear enough to give Merkel’s critics in her own party enough ammunition to seriously consider a coup. To the contrary, Merkel could eventually get stronger again in the coming weeks; also because one of her potential successors, the CDU’s candidate in Rhineland-Palatinate Julia Klöckner, lost an election for the second time. Unless Finance Minister Schaeuble stands up, backed by the more conservative part of the party, to challenge Merkel’s position, it is hard to see an adequate crown prince or crown princess; at least not for the federal elections next year. While her own party should become less of a problem in the coming months, Merkel will be facing two other big challenges, stemming from yesterday’s elections: a politically embattled junior coalition partner and a more general trend in German politics, the rise of populism. The rise of the AfD will give spin doctors and masterminds the biggest headache. The rise could eventually make coalition building after the 2017-election very complicated. It is a rise, which also shows that Germany has caught up with all other European countries: it has finally lost its immunity against populist parties.

Last hooray or new fireworks? ECB announces new stimulus package

It was not the white rabbit or the big game changer but it might have been another, maybe the last, coup of the ECB to revive growth in the Eurozone. At today’s meeting the ECB announced several measures which all aim at making financing conditions even more easier than they already were, while at the same time further trying to improve the transmission mechanism of the monetary policy. Here are the decisions in more detail: - The ECB cut interest rates by 5 and 10 basis points respectively. To be precise, the ECB lowered the refi rate to zero, from 0.05%, the deposit rate to -0.4%, from -0.3% and the marginal lending rate to 0.25% from 0.3%. - Monthly QE purchases will be increased from 60bn euro to 80bn euro. - To make higher QE purchases feasible, the ECB will include corporate bonds into the QE purchases and the threshold for purchases of bonds by international organizations and multilateral development banks will be increased from 33% to 50% per issuance. - A new series of four targeted longer-term refinancing operations (TLTRO) will be launched in in June this year. Banks will be able to get ECB money either at the refi rate (now zero) or even at the deposit rate (now -0.4%), depending on the banks’ lending books. These four big measures are supposed interact and gear into each other. Particularly, the reintroduction of the once less successful TLTROs is a clear alleviate the burden of negative rates for banks. For the first time ever, the ECB will pay banks for borrowing money; at least in case banks fulfil certain criteria. For the technicians, banks will be able to borrow up to 30% of the stock of eligible loans as at 31 January 2016. In general, banks can borrow at the refi rate but for banks, whose net lending exceeds a benchmark for lending growth, borrowing at the deposit rate will be possible. While this measure is clearly groundbreaking, it remains to be seen whether it will work. During the press conference, ECB president Draghi admitted that the ECB was “increasingly aware” of the negative impact of negative rates on banks but that this impact differed across the sector. Some banks were more vulnerable than others but the ECB had to look at the entire sector, not single banks. The ECB’s measures were clearly triggered by a significant downward revision of the inflation projections and continued fears of deflation or at least second-round effects from negative inflation rates. The ECB staff projections showed an expected sub-potential recovery of the Eurozone going into 2018, with GDP growth forecasted at 1.4% (from 1.7%) in 2016, 1.7% (from 1.9%) in 2017 and 1.8% in 2018. Risks are still tilted to the downside. As regards inflation, the ECB staff had to pay a tribute to the further drop in oil prices and the strengthening of the euro since the December forecasts. Here, ECB staff now expects inflation to come in at 0.1% (from 1.0%) this year, 1.3% (from 1.6%) in 2017 and 1.6% in 2018. It was this continued undershooting of the ECB’s inflation target as well as the ECB’s determination to never give up, as Mario Draghi said himself, which led to today’s set of new measures. In addition to the announced measures, the ECB gave a strong forward guidance, stressing that interest rates were not only to remain “at present or lower levels for an extended period of time” but also that rates would remain low “well past the horizon of [the ECB’s] net asses purchases”. In short, rate will remain low for the foreseeable future. All in all, the ECB delivered more than market participants had expected. Particularly the part in which the ECB will now under certain conditions actually pay banks for borrowing money came as a surprise. Still, the rebound of the euro exchange rate after comments by Draghi that the ECB could not cut rates as low as it wanted and that it doesn’t anticipate the need for further rate cuts indicates that betting on a weaker euro as the outcome of today’s meeting is risky. Instead, the ECB will hope that this time around the attempt to revive lending and thereby investment will finally work. It is a long shot with an uncertain outcome. We are hesitant to say that this was it. The ECB is clearly determined to continue fighting. Admitting impotence does not seem to be an option. Whether this fight, without support by governments and fiscal policies (the ECB actually gives a gentle nod to investment in public infrastructure), will really lead to a victory against stagnation and oil price driven low inflation rates remains doubtful. The next months will tell whether today was the igniter of a lasting fireworks or just the last hooray.

Column - Kanzler-in of Kanzler-raus?

Er broeit iets in Duitsland. Terwijl ik op de fiets op weg naar mijn werk in een Frankfurtse villawijk op het fietspad ‘Moslems raus’ zie staan, komt bondskanselier Merkel op tv haar beleid uitleggen. Normaal heel zuinig met tv-interviews, is dit Merkels tweede live-optreden in vijf maanden. Het maakt duidelijk dat de stormvlaggen in Berlijn gehesen zijn en dat men probeert schade te voorkomen. Dit is geen goedkope verkiezingstruc, maar een teken dat Merkel vecht voor haar politieke toekomst. Misschien te laat. Over ruim een week gaan de kiezers in drie Duitse deelstaten naar de stembus. Er kiezen 12,7 miljoen mensen nieuwe deelstaatregeringen. Zoals vaak bij Duitse regionale verkiezingen gaat het minder over regionale politiek en zijn de verkiezingen vooral een barometer voor de nationale politiek. Zeker nu, ruim een jaar voor de volgende nationale verkiezingen. Feitelijk staat er voor bondskanselier Merkel niet zo veel op het spel. Haar partij zit nu maar in één van de drie deelstaatregeringen. Vanuit de machtspolitiek is het neerwaartse risico dus beperkt. Maar het gaat om veel meer. De verkiezingen worden gezien als belangrijke graadmeter van Merkels vluchtelingenbeleid. Of dat beeld klopt of niet, maakt eigenlijk niet uit. Feit is dat de verkiezingen gevolgen zullen hebben. Voor de Duitse politiek in het algemeen en voor Angela Merkel in het bijzonder. Voor de Duitse politiek dreigt het einde van de voorspelbare republiek. De regionale verkiezingen, de opmars van de nationalistische Alternative für Deutschland en een mogelijk verder verlies van de sociaaldemocraten kunnen de opmaat zijn voor verdere verschuivingen in het Duitse politieke krachtenveld. Ook nationaal. Een verdere versplintering van het partijenstelsel. In het verleden was politiek in Duitsland redelijk simpel. Sociaaldemocraten of christendemocraten regeerden samen met hun natuurlijke juniorpartner: de liberalen, respectievelijk de groenen. En als dat niet mocht lukken, dan maar met elkaar in een grote coalitie. Als de opiniepeilingen uit de drie deelstaten kloppen, is dat verleden tijd. Coalities zullen uit minstens drie partijen bestaan, waarbij alle mogelijke combinaties worden opengehouden. Voor Merkel persoonlijk staat er veel op het spel. Haar tv-optreden toont dat zij, na haar Alleingang, eindelijk probeert breder begrip voor haar vluchtelingenbeleid te kweken. Het gevaar is echter dat dat te laat komt. Het rommelt in de coalitie met de SPD en in haar eigen partij. Ongenoegen dat alleen maar zal verdwijnen met grote overwinningen. En als de opiniepeilingen kloppen, ligt dat niet in het verschiet. Als Merkel politiek aan wil blijven, zullen we haar tot volgend jaar veel vaker live op de buis zien. Haar lot is min of meer verbonden aan het lot van de vluchtelingen: er in, of er uit. Deze column verscheen vandaag in het Belgische dagblad "De Tijd"

German Ifo takes a dive in February

Wake-up call. Global events have finally reached German companies’ boardrooms. At least this is one conclusion of today’s Ifo reading. Germany’s most prominent leading indicator, the just released Ifo index, dropped to 105.7 in February, from 107.3 in January; the third decline in a row and the lowest reading since January 2015. Particularly expectations have taken another sharp hit from recent market turmoil, the adverse impact of low oil prices and renewed concerns about a slowing of the Chinese economy, dropping to 98.8 in February, from 102.3 in January. Remarkably, the current assessment component increased to 112.9, from 112.5 in January, indicating that it is fear rather than an already felt decline which is troubling German companies. Earlier this morning, the German statistical office had released details of GDP growth in the final quarter of 2015. The data showed that growth was mainly driven by consumption, more from the public than the private sector, and the construction sector. Net exports had been a severe drag on growth, with (QoQ) exports actually dropping for the first time since 2012. Although looking positive at first glance, these GDP data are already telling a slightly less optimistic story about the German economy. Despite the strong labour market, low inflation, low oil prices and higher wages, private consumption growth slowed down in the final quarter. Back to today’s Ifo index. As so often in the past, even though they probably the most internationally-oriented companies in the world, it took German companies a while to realize that the world outside of Germany has changed. For a while, the cooling of the Chinese economy and the slowdown in emerging markets was more than offset by strong demand from the US and a rebound of activity in some Eurozone countries. Currently, however, as low oil prices are denting US growth prospects, the US economy could no longer be the strong safety net for German exports and industry that it was in 2015. As paradox as it might sound, low oil prices currently seem to do more harm than good to the German economy. All in all, today’s Ifo index sends a strong wake-up call to the German economy: the easy and carefree life on the island of happiness seems to come to an end. For the time being, solid domestic activity should avoid any real negative surprised. Growth on the back of the public sector, consumption and construction activity might shield the German economy from external headwinds, but is clearly not a strategy for sustainable growth in the medium run. Just ask the majority of Germany’s Eurozone peers.

German growth, new risks and Bayern Munich

Now it’s confirmed. The German economy ended the year with a decent growth performance in the final quarter. Despite increasing external headwinds, the German economy grew by 0.3%. This is slightly less than the first estimate for the annual growth number had suggested and probably the result of an entire batch of disappointing hard December data. Compared with the last quarter of 2014, the economy grew by 2.1%. Working-day adjusted, 4Q growth was 1.3% YoY. Details of 4Q GDP will only be published at the end of the month but available monthly indicators and the statistical office’s statement suggest that domestic demand was the main growth driver. Government consumption, a bit of private consumption and another surge in the construction sector supported growth, while at the same time net exports were a drag on growth. Without any doubt, the performance of the German economy since 2009 has been impressive. In 27 quarters, the economy only shrank three times. Moreover, over this period, the economy moved from a purely export-driven model towards a much more balanced model with domestic factors currently shielding the economy against external headwinds. Sadly, as impressive this well-known growth story might be, against the background of latest financial market turmoil, today’s German GDP data almost look like a relict of the good old days. They will do little to nothing to calm markets. Looking ahead, the year 2016 could be more challenging for the German economy than many had expected. Not only due to the refugee crisis and increasing political uncertainty but mainly due to increasing external headwinds. On top of the well-known risk factor like slowing China and emerging markets or a still struggling Eurozone, low oil prices and the possible weakness of the US economy could give the German economy a hard time. In particular, any slowdown of the US economy could turn out to be a double whammy for Germany. The direct impact through weaker demand from last year’s most important trading partner and the indirect impact through a stronger euro are in our view currently the biggest risks for the German economy. To some extent, there are similarities between Germany’s showcase soccer team Bayern Munich and the Eurozone’s showcase economy. At first glance, both performances look impressive and flawless. At second glance, however, weaknesses have emerged recently. These weaknesses have clearly increased the risk for both Bayern Munich and the German economy to surprisingly be knocked off their respective pedestals in the coming weeks and months. Carsten Brzeski

German industry disappoints in December

German industrial production dropped by a depressing 1.2% MoM in December, putting an end to a rather disappointing year for the German industry. This was the sharpest monthly drop since August 2014. On the year, industrial production was down by 2.2%. Looking at the details, there was only one bright spot in the production of intermediate goods (+0.8% MoM). All other sectors saw a decline in production. Parts of this December drop can be explained by the timing of the Christmas vacation which put parts of the production process on halt for almost two weeks in December. However, the fact that industrial production in the final quarter of the year was almost 1% lower than in the third quarter illustrates the general weakness of Germany’s former growth engine. At the same time, exports and imports both dropped by 1.6% MoM in December, narrowing the non-seasonally adjusted trade surplus to 18.8bn, from 20.5bn euro in November. December trade data show that German exporters have also started to suffer weaker foreign demand. Nevertheless, contrary to industrial production, the trade performance over the entire year 2015 was still positive. For most parts of the year, German exports benefitted from a weaker euro. Particularly, exports to the US have benefitted from the sharp depreciation of the euro since 2014. As a consequence, the US has become Germany’s most important trading partner in 2015, taking this number one spot from France. In this regard, renewed fears of a Chinese hard landing should not push the German economy into severe problems. Germany currently exports almost twice as much to the US as to China. Interestingly, help to offset weaker demand from emerging economies did not only come from overseas but also from next door. Exports to the Netherlands also increased strongly in 2015, making the Netherlands Germany’s third most important trading partners, taking both exports and imports together. All in all, this morning’s data were a painful reminder that not all is hunky dory in the Eurozone’s largest economy. In fact, the German “Wirtschaftswunder” has only some domestic magic left. With the strong labour market, low inflation, low interest rates and higher wages, consumption is strong and, in addition, services and the construction sector have become important growth drivers. The German industry, however, is still standing on shaky grounds. While the industry had been able to stomach the cooling of the Chinese economy, the slowdown of emerging markets, the euro crisis and geopolitical risks, it now seems as if extremely low oil prices and the slowdown of the US economy are simply two risks too much for the industry. Particularly, the possible US slowdown could turn out to be the biggest risk for the German economy as it could weaken the country’s most important export driver these days. Moreover, as capacity utilization in the industry is close to historical averages, an imminent investment boost also seems far from certain. Finally, last week’s new orders data combined with dropped product expectations, increased inventories and narrowed order books all do not bode well for industrial production in the coming months.

ECB meeting - It ain't over till it's over

What was expected to be a dull first meeting of the year, turned out to be an exciting ECB meeting with ECB president Mario Draghi opening the door widely for new ECB action in March. While today’s ECB meeting will again feed bold speculations about what could happen in March, the question remains whether Draghi will really be able to deliver on his promise. No action today but probably in March. This is the bottom line of today’s ECB meeting. Interest rates and all else were kept on hold. However, ECB president Draghi sounded much more concerned about the outlook for the Eurozone economy, both in terms of growth and inflation, than six weeks ago. Draghi explicitly mentioned the renewed sharp drop in oil prices, the appreciation of the euro (let’s not forget, the side-effect of Draghi’s monetary policy own goal in December) and the slowdown of emerging markets and China. In addition, Draghi mentioned the volatility in financial and commodity markets as one of the factors behind the increase in downside risks since the start of the new year. Against this background, Draghi sent several strong messages, hinting at new ECB action at the next ECB meeting. First of all, Draghi reintroduced the concept of explicit forward guidance by stating that “we expect them [key ECB interest rates] to remain at present or lower levels for an extended period of time”. In our view a clear indication that despite having announced the lower bound for interest rates several times of the last years, the ECB is again considering cutting rates. Moreover, an even stronger hint at new action was given with the sentence “it will therefore be necessary to review and possible reconsider our monetary policy stance at our next meeting in early March”. According to Draghi, “work will be carried out to ensure that all the technical conditions are in place to make the full range of policy options available for implementation, if needed”. A bit of a surprise as we thought that all possible options had already been on the table back in December. Financial markets reacted enthusiastically to Draghi’s hints and the euro exchange rate dropped immediately. The question, however, is whether and what the ECB can really deliver in March. Let’s not forget that the outcome of the December meeting looked like a compromise between doves and hawks, with the ECB eventually delivering less than markets had expected. Admittedly, at least the external environment for the Eurozone economy has worsened since the December meeting but it is unclear what the ECB can do to tackle low prices. It is hard to imagine that oil purchases will be on the agenda in March. Nevertheless, unless oil prices rebound in the coming weeks or the Eurozone economy surprises to the upside, it will again be difficult for the ECB not to deliver with new action in March. Judging from today’s comments, the most likely common denominator for both hawks and doves should be another rate cut (perhaps the idea of a two-tier deposit rate will be dug out again), possibly combined by another marginal fine-tuning of QE. All in all, today’s ECB meeting shows that Mario Draghi is always in for a good surprise. Every time it looked as if the ECB was done with its stimulus and willing to wait until all measures have had enough time to unfold their full impact, Draghi puts another log on the fire. Even if the big question remains whether Draghi can actually make markets’ new dreams come true. We might not hear Draghi sing at a press conference but for now Draghi has today again reminded everyone that “it ain’t over till it’s over”.

Solid recovery continues: German GDP grew 1.5% in 2015

It is a strange habit of the German statistical office to release GDP data for the entire past year before actually publishing fourth quarter data. According to the just released numbers, German GDP increased by 1.5% in 2015 (in calendar-adjusted terms), from 1.6% in 2014. Without working day adjustments, German GDP increased by 1.7%, from 1.6%. In our view, this outcome suggests that the German economy has probably grown by some 0.4% QoQ in the fourth quarter. However, as no hard data for December has been available so far and the statistical office normal uses extrapolations and historical patterns for its fourth quarter estimates, some downward revisions cannot be excluded. Let’s not forget that the vacation period could have had a negative impact on production in December. Moreover, the statistical office also released a first estimate of Germany’s 2015 fiscal balance, providing more arguments for the critics of too weak German public investment. For the first time since 1961, the German government recorded a fiscal surplus in two consecutive years. According to the statistical office, the fiscal surplus came in at 0.5% of GDP in 2015, from 0.6% GDP in 2014. German austerity fetishists will love it. Already yesterday, the German government reported a federal fiscal surplus, which at the federal level came in at 12bn euro, instead of the initially planned 5bn euro. Previously, the government coalition had already decided to transfer any surplus from the 2015 budget entirely into the 2016 budget and not using the surplus to reduce government debt. The funds are needed to finance the costs of the refugee inflow, which the government has currently estimated at around 8bn euro. The reported surplus now offers additional financing leeway for another 7bn euro. While initially this additional fiscal room for maneuver will be used as a buffer for the refugee costs, it is obviously also grist to the mills of proponents for more public investment. Returning to GDP data, today’s numbers almost close the economic year 2015 for Germany. It was yet another year in which the German economy defied earlier swan songs and, despite many headwinds like the Greek crisis, the slowdown in emerging markets and China and increased geopolitical uncertainties, continued the recovery. The year 2015 clearly marks an important step in the rebalancing of the German economy, as private consumption turned out to be an important growth driver (contributing 1.0 percentage points to growth). Still, despite all talks about the strength of the German economy, it took until 2015 before the current expansion has finally become stronger than the last one between 2004 and 2008. Moreover, it would still need at least two more solid years of growth before the cycle between 1994 and 2000 could be equaled. Looking ahead, the two-speeded recovery, with strong consumption and services on the one hand and sluggish industrial production and exports on the other hand, should continue in 2016. As regards the domestic part of the economy, the year 2016 should bring at least a short-term consumptive stimulus from the refugee inflow and increased government consumption. At the same time, low interest rates, low inflation and high employment should further boost growth. As regards the external and industrial part of the economy, high inventories, subdued order books and weaknesses in several important export markets suggest that the German export sector could soon simply face too many headwinds to prolong the recent success story. All in all, the German economy has once again defied many external headwinds and performed another solid growth year in 2015. However, there are at least two caveats to today’s positive data: firstly, after several years of stellar performances (at least vis-à-vis the rest of the Eurozone), the German economy has returned to normality, hardly outperforming the Eurozone any longer. And secondly, without any new structural reforms and investments it is hard to see any sharp acceleration of the economy any time soon. This might be as good as it gets. Therefore, any celebrations and self-adulations should remain extremely modest.

German IP disappoints in November

This morning’s trade and production data end an almost all-German week in the Eurozone, in which macro-economic data have almost been overshadowed by the mass assaults in several bigger German cities on New Year’s Eve. While the latter could, in our view, mark a turning point in Chancellor Merkel’s handling of the refugee influx, macro data shows a two-speeded economy with strong domestic demand but rather sluggish industrial and export activity. Turning to this morning’s data, industrial production dropped in November by 0.3% MoM, adding to evidence that the Chinese and emerging market slowdowns are leaving their marks on the Eurozone’s largest economy. Moreover, these weak data add to concerns that hard data will not be able to catch up with optimistic sentiment indicators. On the year, industrial production remained unchanged. Looking at the details, bright spots were in the production of intermediate (+1.1% MoM) and consumer goods (+1.9% MoM). The construction sector benefitted from the mild weather in November and increased by 1.6% MoM. At the same time, exports increased by 0.4% MoM in November, while imports increased by 1.6% MoM. As a consequence, the trade balance narrowed to 20.6bn euro, from 22.5bn euro in October. It is not easy to find a common theme for latest German data. While consumption remains solid, on the back of the strong labour market, low inflation and low interest rates, latest developments are still far from creating exuberance. At the same time, industrial production is treading water and the current slowdown is clearly more than only the result of a vacation-driven summer lull. Looking ahead, ongoing uncertainties in China, a possible slowdown in the US economy and more generally the negative effects from record-low oil prices a quick rebound in industrial production is anything but certain. To the contrary, in our view, industrial activity should continue to remain sluggish this year. However, this does not necessarily have to be a problem. In fact, Germany seems to experience the same phenomenon as for example the US and Chinese economy: a shift from manufacturing towards services. In Germany, this has been illustrated by the Ifo index for individual sectors. While the manufacturing sector has been treading water throughout the year and weakened in recent months, the construction, retail and wholesale sectors have been driving the strong Ifo index performance in recent months. Another piece of evidence that the German economy is currently mainly driven by domestic factors. Moreover, the fact that the Ifo index for the service sector has recently climbed to its highest level since early 2005, provides further evidence for the decoupling of manufacturing and services. As regards exports, German exporters are still benefitting from the weak euro. Particularly, exports to the US have benefitted from the sharp depreciation of the euro since 2014. As a consequence, the US has been Germany’s most important trading partner this year, taking this number one spot from France. In this regard, renewed fears of a Chinese hard landing should not push the German economy into severe problems. Germany currently exports almost twice as much to the US as to China. However, as it is not only the Chinese economy which is slowing down but also other emerging markets, while at the same time Eurozone peers are still struggling to gain momentum and oil-exporting countries are suffering from low energy prices, the German export sector could soon simply face too many headwinds to prolong the recent success story. Next week, the German statistical office will continue its long tradition of releasing GDP data for the entire year without having any hard macro data for December. The latest batch of November data suggests a continuation of the recovery in the fourth quarter, albeit at a rather subdued pace. However, in the light of the latest market turmoil, continued concerns about the Chinese economy, extremely low oil prices and the absence of dynamic growth regions in the world economy, any shouts of joy about strong German growth should better remain humble. Carsten Brzeski

Encouraging data from Germany

Signs of relief. This morning’s German data provides some relief and signs of stabilization of the economy in the final quarter of the year. Particularly the surprise increase of new orders in November bodes well for the coming months. After a disappointing summer performance, German new orders increased for the second month in a row, now by 1.5% MoM in November, from 1.7% MoM in October. For the pessimists, the increase in new orders was mainly driven by domestic demand (2.6%). This shift of the German economy towards more domestic activity is probably the theme of 2015. On the year, domestic new orders are now up by more than 6%, while foreign orders are down by 0.7%. Moreover, this morning’s retail sales data supports strengthened domestic demand, showing an increase of 0.2% MoM in November. On the year, retail sales are up by 2.3%. This morning’s data has at least two important messages for and on the German economy: i) there is still hope that hard industrial data will eventually catch up with strong soft data (and the other way around); and ii) with record low inflation, record high employment, record low unemployment, strong consumption and the surge in domestic orders, the year 2015 marks the successful transition towards more balanced growth.

German exports drop in October

Weakening but not faltering. German exports dropped by 1.2% MoM in October, from +2.6% in September. As imports dropped by 3.4% MoM, the seasonally-adjusted trade balance actually improved to 20.7 bn euro, from 19.2 bn euro in September. In our view, the October drop in exports is a technical correction after strong September data, rather than a structural shift. Honestly, it is also very hard to attribute this drop to the Volkswagen emission scandal. Despite the negative contribution of net exports to German GDP growth in the third quarter, the export sector remains an important growth driver. Since 2009, net exports have contributed 0.1 pp to quarterly GDP growth; or one third of GDP growth every single quarter. This success story is not only the result of excellent quality and product specialization of German exporters, but also of a wide range of export destinations and recently the weak euro. In fact, a closer look at German export destinations shows that during the first nine months of the year, exports to China were down by 2.5% compared with last year’s period, showing the negative impact from the ongoing slowdown of the Chinese economy. At the same time, exports to Russia were slashed further, dropping another 28% on the back of sanctions. On the positive side, exports to the US surged by more than 20%, reflecting the direct impact of the euro weakening. Moreover, exports to the UK (+14%) and Eastern European countries (+9%) compensated for weaker demand from China. Turning to Eurozone export partners, exports benefitted from the recoveries in both Spain (+14%) and the Netherlands (+9%), while exports to France remained sluggish (+3%). As a consequence, the US has become Germany’s biggest trading partner and for the first time in years should end the year on the number one spot, ahead of France. To some extent, the ECB’s QE programme and more specifically the weak euro have been an extremely well-targeted stimulus package for German exports. It nicely amplified export growth in the US and the UK, thereby offsetting the negative impact from slowing China. Not surprisingly, Germany is amongst the biggest beneficiaries of the weaker euro, seeing its exports to non-Eurozone countries growing at a faster rate than the rest of the Eurozone; except for Ireland. While German exports to non-Eurozone countries grew by more than 9% during the first nine months of the year, the Eurozone’s export increased by 6%. All in all, German exports have become an extremely mixed bag, always up for surprises and full of diverging trends. Due to too many economic slowdowns and geopolitical conflicts around the world, exports will continue having troubles gaining more momentum in the period ahead. However, as long as the monetary policy divergence on both sides of the Atlantic continues and the ECB continues with QE, exports should remain supportive to growth.

Column: De sterren voor 2016

Zelfspot is niet de meest opvallende karaktertrek van Duitsers. Zelfs na ruim een jaar weer in Duitsland te zijn, is de humorcultuurschok voor mij nog altijd wennen. Economen moeten hier het liefst ‘Herr Professor’ heten en bloedserieuze analyses voorstellen. Bij voorkeur zwaar aangezet, zoals ‘de vluchtelingen zijn de ondergang van Duitsland’ of ‘Mario Draghi rooft het spaargeld van alle Duitsers’. Dat heeft gewicht. Alleen is het jammer dat aan het eind van elk jaar blijkt dat ook humorloze humor geen garantie biedt voor trefzekere voorspellingen. Daarom nu mijn alternatieve poging om met on-Duitse humor een blik op het volgende jaar te wagen. Te beginnen met Griekenland. Door de aanhoudende politieke chaos, de uitblijvende groei en de volledige uitverkoop van het land kantelt de sfeer onder de Griekse bevolking. De Grieken willen definitief uit de eurozone. Alexis Tsipras wint ruimschoots het nieuwe referendum over de grexit. Deze keer houdt hij zijn verkiezingsbelofte. De Duitse bondskanselier Wolfgang Schäuble, na de zelfstandigheid van Beieren en de val van Merkel de nieuwe regeringsleider van een CDU/Groenen-coalitie, feliciteert Tsipras met de woorden: ‘Sie sind geschafft.’ Als 'wederopbouw Zuid' stuurt Schäuble nog het oude bestuur van Volkswagen en het organisatiecomité van het WK voetbal 2006 naar Griekenland. Ze moeten er bekijken of de Olympische Spelen niet permanent in Griekenland kunnen plaatsvinden en of ze geen milieuvriendelijke investeringen voor de Grieken kunnen binnenhalen. Op hetzelfde moment blijkt dat elke Chinees aan vier iPhonekopieën echt genoeg heeft en dat de consumptie instort. Waardoor de wereldeconomie in een recessie belandt. Na zijn verkiezingsoverwinning kondigt de nieuwe Amerikaanse president Donald Trump onmiddellijk een ongekend stimuleringspakket voor 2017 aan. In elke Amerikaanse stad, al is die nog zo klein, worden wolkenkrabbers en casino’s gebouwd. Trump overweegt ook om wolkenkrabbers uit Londen naar de VS te verhuizen, vanwege de enorme leegstand in de Londense kantoorgebouwen na de brexit. In het Midden-Oosten begint een valutaoorlog. Nadat de prijs van olie onder 20 dollar per vat is gedaald, geven de olie-exporterende landen de koppeling van hun eigen munt aan de dollar op. ECB-president Mario Draghi reageert onmiddellijk met QE3 en QE4. Tegelijkertijd publiceert Commissie-voorzitter Jean-Claude Juncker alweer een nieuw investeringsplan. Dit keer voor een Europees ruimtevaartprogramma. Als er eindelijk leven op andere planeten wordt ontdekt, kan dat de eurozone, door de nieuwe exportmarkt, eindelijk de broodnodige duw uit de recessie geven. Zoals de lezer wel merkt, heeft de aloude Duitse dijenkletshumor mij ook al aangestoken en neemt deze column het glazenbolkijken voor 2016 niet serieus. Echt, wie heeft er eind 2014 de grootste crisissen van 2015 voorspeld? Maar zoals bij elke goede grap zit er misschien toch een druppel waarheid in… Deze column verscheen vandaag in het Belgische dagblad "De Tijd".

ECB gifts disappoint after unwrapping

Santa Mario did not turn into the Grinch, the Christmas monster. However, his long-awaited early Christmas afternoon left many market participants disappointed like small kids who receive less and smaller presents than expected on Christmas eve. At its long-awaited meeting, the ECB today cut the deposit rate to -0.3%, from -0.2%, while leaving all other interest rates unchanged. In addition, the ECB decided to extend the deadline of QE purchases to at least until March 2017, from earlier September 2016, and to introduce other measures, broadening the scope of the monthly purchases. For the first time in a long while, ECB president Draghi underachieved and delivered less than the market consensus had expected. As a result, the euro appreciated and bond yields increased immediately after the policy decision. So what exactly did the ECB decide? Basically five things: i) a 10bp cut in the deposit rate; ii) an extension of the formal deadline of monthly QE purchases to at least March 2017, from earlier September 2016; iii) reinvestments of the principal payments of the securities purchased “for as long as necessary”; iv) the inclusion of regional and local government bonds in the monthly purchases; and v) an extension of fixed-rate tender procedure and full allotment for refinancing operation until the end of 2017. What the ECB did not announce was a bigger cut of the deposit rate, a cut in the refi rate or an increase of the monthly asset purchases. The discrepancy between what the ECB did and did not announce raises the question of the ECB’s ratio behind it and the arguments. Looking at the ECB’s macro assessment, it looks as if almost unchanged growth and inflation forecasts as well as a positive assessment of the impact from QE up to now laid the grounds for the ECB’s rather reserved policy reaction. In more detail, ECB staff now expects GDP growth to come in at 1.7% next year (unchanged) and 1.9% (from 1.8% in September) in 2017 and inflation to accelerate to 1% (from 1.1% in September) next year and 1.6% (from 1.7%) in 2017. The underlying story is still the same one of a gradual recovery with downside risks to growth and inflation. According to Mario Draghi, all ECB measures taken so far have increased the inflation forecasts by 0.5 percentage points for 2016 and 0.3 percentage points for 2017. They also boosted GDP by 1 percentage point over the period 2015 to 2017. Moreover, the ECB’s decision to deliver only a very bare minimum of additional monetary stimulus indicates that the hawks at the ECB are stronger than many market participants had thought and that the ECB itself was surprised by the latest resilience of the Eurozone economy and the estimated positive impact of QE so far. Looking ahead, today’s decision still leaves all doors open for more monetary stimulus, in case the outlook for both growth and inflation were to worsen again. In the short term, however, it leaves the destiny of the euro exchange rate mainly in the hands of the Fed. For ECB watchers, today’s meeting was an important lesson not to take Draghi’s overachieving for granted. All in all, today’s ECB meeting, which was expected as an early Christmas present party, turned out to be a bit of a disappointment, maybe better matching the current Zeitgeist in the Eurozone: no copious and excessive gift party but more introvert modesty.