Europa - even best onbelangrijk

Het is inmiddels een bekend stramien: grote Europese beslissingen worden uitgesteld. De toekomst van de eurozone, een financieel reddingsfonds voor eurozonebanken, een schuldenkwijtschelding voor Griekenland of een tweede reddingspakket voor Portugal? Alle vragen liggen op ijs, omdat de Duitsers dit spervuur nu niet kunnen hebben. Bondskanselier Angela Merkel wil de bloeddruk niet meer laten stijgen voor de verkiezingen op 22 september. Maar wat gebeurt er nadien? Krijgen we dan de Europese oerknal? 

Tot nog toe is de Duitse verkiezingscampagne allesbehalve een oerknal. Ze is gewoon doodsaai. Merkel surft comfortabel op haar enorme populariteit en beoefent alleen nog het vermijden van uitglijders. Tegelijk slaagt haar sociaaldemocratische uitdager Peer Steinbrück er maar niet in te scoren. Ondanks de opkomst van een nieuwe anti-Europartij spelen Europa en de eurocrisis geen rol in de campagnes. Het thema Europa wordt beperkt tot kretologie of staatsmannelijk bobogedrag. Onlangs nog schamperde Steinbrück over het afschaffen van gloeilampen en de pietluttige regeldrift van de EU, en bood de bijeenkomst van regeringsleiders in Berlijn om de jeugdwerkloosheid aan te pakken Merkel een mooie gelegenheid om haar sociale kant als crisismanager te laten zien. 

Eigenlijk jammer. Als de Duitsers het zouden willen, kunnen ze nu hun stempel drukken op de toekomst van de eurozone. Een blik op de verkiezingsprogramma's laat interessante verschillen zien. De huidige regeringspartijen staan nog steeds voor Merkels bekende strategie van voorwaardelijke integratie. De uitspraak van Kennedy parafraserend staat Merkel voor 'vraag niet wat de eurozone (of de Duitsers) voor jou kan doen, maar vraag wat jij voor de eurozone kunt doen'. Euro-obligaties en lastenverdeling worden uitgesloten. Helemaal anders ligt het bij de grootste twee oppositiepartijen. De sociaaldemocraten en de groenen zijn voorstander van een schuldenaflossingsfonds en van gemeenschappelijke financieringen. Ze durven zelfs het vermaledijde woord eurobonds in de mond te nemen.

 Voor de meeste Duitsers blijft de eurocrisis een virtuele crisis. Ze zien ze op de televisie en ze lezen erover in de kranten, maar ze raakt hen niet werkelijk. Om die reden blijft de eurocrisis goed verstopt in de honderden pagina's verkiezingsprogramma's en speelt ze geen hoofdrol in de campagnes. Een gemiste kans op een nieuwe bladzijde in de Duitse geschiedschrijving. De Duitse verkiezingen raken de eurozone in het hart, maar Europa raakt de Duitser alleen in het hoofd en in de portemonnee. Het belang van deze verkiezingen voor Europa kan Duitsland niet echt boeien.

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

A bad day

Today’s macro data were disappointing. German exports dropped by 2.4% MoM in May, from +1.4% MoM in April. At the same time, imports increased by 1.7% MoM, narrowing the seasonally-adjusted trade balance to 13.1 bn euro, from 18.0 bn in April. At the same time, industrial production lost parts of its April gains and decreased by 1.0% MoM in May. On the year, industrial production is now down by 1.0%. The drop was broadly-based, driven by all sectors, with the sharpest drops in the production of capital goods (-2.3% MoM) and in the construction sector (-2.6%). Interestingly, despite the drop industrial production is still up by around 2.5% compared with the first quarter.

Definitely not a good day for the German economy. Combined with last week’s drop in factory orders, evidence is increasing that the Eurozone’s economic engine is still not running smoothly. The big question is whether this is the result of a structural weakness or special factors?

Some market observers have used yesterday’s data as support that the German economy is weaker than it is often presented. Indeed, the economy has been the stronghold of the Eurozone economy since the start of the crisis but it is not without soft spots. There are obvious structural challenges ahead and German politicians should use the economic good times to continue with structural reforms. Amongst the important issues in the years ahead the most pressing ones are the challenges stemming from ageing and the lack of domestic investments. Nevertheless, these structural challenges are not the reason for yesterday’s disappointing data. In our view, it is the special factors.

In fact, German data since the beginning of the year have been highly erratic. Unusual discrepancies between hard and soft data combined with big monthly swings have made it harder to identify the real strength of the economy. In fact, the only constant of the German economy was private consumption on the back of the solid labour market and recent wage increases. Exports and industrial production have been affected significantly by the harsh winter weather, a holiday-loaded month of May and to lesser extent by struggling economies elsewhere. While other economies are currently suffering from volatile markets, the German economy is suffering from a weather- and holiday-driven volatility.

For the time being, German data is so erratic that it is something for everyone. Both for optimists and pessimists. In our view, optimists should prevail as the sound fundamentals of the economy have not disappeared.

German new orders dispappoint in May

Setback. German new orders decreased by 1.3% MoM in May, illustrating the difficulties the German industry still has to return to full strength. This was the second monthly drop in a row. On the year, new orders are down by 2.0%, from -0.3% in April. The drop was mainly driven by a sharp decrease of domestic orders (-2.0% MoM) and orders from other Eurozone countries (-3.9% MoM). Orders from non-Eurozone countries actually increased by 1.1% MoM. Although these numbers are disappointing, they have to be taken with a pinch of salt. This year, the month May had an unusually high number of public holidays and vacation, probably at least partly blurring the picture.


German new orders have been on a zig-zag trend for more than a year. Over the last twelve months, there were only two consecutive months in which new orders increased: February and March of this year. Still, the underlying trend is slightly positive. Since the beginning of the year, new orders have now increased by roughly 1%. The decomposition of this increase, however, reflects the harsh reality of the Eurozone crisis and the gradual decoupling of the German economy from its Eurozone peers. While orders from other Eurozone countries have dropped by roughly 6% since the beginning of the year, orders from non-Eurozone countries have increased by roughly 3%.

Looking ahead, today’s new orders illustrate that the German industry still has difficulties to return to full strength. In the short run, recent inventory reductions and still reasonably filled order books should ensure a gradual pick-up in industrial production. However, the medium-term outlook is not yet looking rosy.

ECB's 4th of July tribute: forward guidance

The ECB kept its interest rates on hold. What was expected to be a rather dull meeting, turned out to be historical. With forward guidance for the first time ever and further rate cuts in sight, the ECB tries “whatever-it-takes” to safeguard the fragile recovery of the Eurozone.

As regards the macro-economic assessment, the ECB has again become somewhat more cautious compared with last month. The base case scenario still foresees a gradual recovery of the Eurozone economy in the second half of the year, “albeit at a subdued pace”. However, latest developments in financial markets seems to have created some note of caution as the ECB added a new downside risk to the economic outlook: the “recent tightening of global money and financial market conditions and related uncertainties”. As regards inflation, the ECB still expects underlying price pressure over the medium term to remain subdued. Risks to this outlook remain balanced but the addition of the small word “still”, now reading that “risks to the outlook for price developments are still broadly balanced…” could be an intermediate step towards downside risks.

New additional downside risks to growth and the marginal shift to the downside of inflationary risks has led to an unprecedented step: for the first time ever, the ECB gave forward guidance on its interest rates by saying: “the Governing Council expects the key ECB interest rates to remain at present or lower levels for an extended period of time. This expectation is based on the overall subdued outlook for inflation extending into the medium term, given the broad-based weakness in the real economy and subdued monetary dynamics.” No more “we never pre-commit”.

There had been a lot of speculation ahead of today’s meeting on how much guidance the ECB could give to stress that an exit of loose monetary policy was anything but near and that any Fed tapering should not be extrapolated to the Eurozone. Today’s answer was unexpectedly strong. The fact that ECB president Draghi also mentioned that a rate cut had been discussed at today’s meeting underlines the clear downside bias. According to Draghi, this new forward guidance is conditional to three factors: medium-term inflation outlook, economic growth and monetary aggregates and credit growth. As these three factors are nothing else than the well-known three pillars of the ECB’s monetary policy assessment, there still is ample room of future speculation and interpretations.  The ECB did not (yet) go all the way by linking its forward guidance to specific indicators as the Fed has done.

On a different matter, Draghi remarked that the ECB was not in a leading role any longer on the discussion on how to restart lending to SMEs. According to him, the ECB was now in an advisory role. In our view, a clear sign that any ABS purchases are still unlikely in the near future.

So, what does all of this mean? In our view, the ECB remains highly concerned about the state of the Eurozone economy. In the near term, a rate cut looks like the most likely (and also most easiest) policy option if the economy fails to recover. To get some idea on when the ECB would ever start to exit loose monetary policy, a close look at inflation forecasts and credit growth should currently be the best guide.

Throughout the crisis, the ECB has morphed from a rather hesitant and reluctant into a bold and daring central bank. In fact, over the last months, the ECB has been following the Fed’s footsteps: more focus on growth with explicit mentioning of high unemployment and now the forward guidance. With today’s meeting, ECB president Draghi has again proven that he is the Eurozone’s “whatever-it-takes” man who is willing to let the ECB boldly go where no Eurozone central bank has ever gone before. At least on 4th of July, this unknown place looks a bit American.

OMT, the ECB's most powerful policy tool?

German labour market still solid as a rock

The success story continues. German unemployment dropped by a non-seasonally adjusted 72,200 in June, bringing the total number of unemployed to 2.865 million, the lowest level since December 2012. In seasonally-adjusted terms, unemployment dropped by 12,000, the first monthly drop since February. The seasonally-adjusted unemployment rate remained unchanged from a downwardly revised 6.8% in May.


As expected, the spring revival of the German labour market came with a delay. The high number of public holidays and the cold weather in May had blurred last month’s data. Today’s numbers show that it was far too premature to start singing Swan Songs on the labour market.

In fact, the German labour market remains the show case example for successful labour market reforms. The June revival was actually the strongest June revival since 2010. It seems as if earlier reforms are still paying off and that the German labour market needs less economic growth than in the past to create jobs. Up to the early 2000s, the German economy required growth of at least 1 ½ % to create new jobs. In recent years, GDP growth rates of less than 1% were sufficient for job creation. This bodes well for the near-term outlook, indicating that despite an expected GDP growth rate of only roughly 0.5% this year, the labour market should remain stable. At the Eurozone level, it is obvious that the success of its own structural reforms will further encourage the German government to continue hammering on structural reforms.

With yesterday’s strong consumer confidence and today’s good labour market report, domestic demand should continue being an important growth driver this year.

German economy cruises along smoothly

Nice and steady. The German economy seems to cruise along nice and steady, defying any growth concerns. Germany's most prominent leading indicator, the Ifo index, increased to 105.9 in June, from 105.7 in May. As expected, the current assessment component dropped slightly to 109.4, from 110 in May, while the expectation component increased to 102.5, from 101.6.


Since the start of the year, the German economy has gone through several ups and downs with an almost unprecedented dichotomy between soft and hard data. The harsh winter weather, the Cyprus bailout and now the floods have made it harder than usual to forecast the path of the German economy. Strong soft data at the beginning of the year was not followed up by strong growth. The external one-offs delayed the rebound of the economy. Judging from available hard data, this rebound should unfold in the second quarter. Industrial production surged, the construction sector more than offset the entire output losses caused by the harsh winter weather and exports regained momentum. Only private consumption seems to have taken a breather.

Looking ahead, main risks for the German economy come from the outside, not from the inside. Domestic demand has become something to fall back on and should remain solid this year, driven by low inflation, low interest rates and latest wage increases. The main risks for the German economy remain stagnating growth in its main Eurozone trading partners, above all France, and a hard landing of the Chinese economy. Contrary to common belief, even Abenomics and the recent depreciation of the yen hardly pose a risk for German exports. German and Japanese exports stiff differ significantly in terms of product and geographical specialisation. This is reflected in the very low weight of the Japanese yen (roughly 3%) in Germany’s nominal effective exchange rate against 41 major trading partners. Just to illustrate: while the euro gained more than 20% against the yen since December, Germany’s real effective exchange rate has appreciated by 0.5%. Admittedly, the weaker yen could put some pressure on some German exports to Asian countries but at the macro level Abenomics is no reason to change the German growth outlook.

In sum, it is not overly exciting anymore but today’s Ifo simply confirms the well-known story that the German economy is cruising along smoothly.