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.

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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.