Van Duitsers en kakkerlakken

Afgelopen zaterdag was het weer feest bij een voetbalwedstrijd van mijn zoon. Een sportieve match tussen 10-jarige jongens eindigde ei zo na in een gevecht. De ouders van de thuisploeg slingerden het bezoekende team vanaf de zijlijn vanalles naar het hoofd. De kinderen op het veld waren er duidelijk door geïntimideerd. Na een kort moment van verwondering probeerde ik de boel te sussen. En zoals dat gaat, werd ik zelf het nieuwe doelwit. 'De Duitser heeft het gedaan.'

Hoewel een vurige aanhanger van Die Mannschaft zal Angela Merkel, bij gebrek aan nageslacht, mijn ervaring bij het voetballen niet aan den lijve hebben ondervonden. Maar in Europa beleeft ze iets soortgelijks. Hier is vaak te horen dat bezuinigingen en structurele hervormingen alleen maar moeten vanwege Angela Merkel. Recessies, hoge werkloosheid en wanhoop. Allemaal de schuld van Angela Merkel? Een grote denkfout. Hervormingen en bezuinigingen zijn broodnodig om de eigen economie weer op orde te krijgen, niet om Frau Merkel gelukkig te maken. Haar persoonlijke geluk hangt niet af van de Spaanse of Nederlandse huizenmarkt, het gebrek aan internationale concurrentiekracht van de Italiaanse en Franse economie, of de Griekse overheidsfinanciën.

Volgens Nobelprijswinnaar Paul Krugman steunt Merkels beleid zelfs op kakkerlakkenideeën, onuitroeibaar en altijd terugkerend. Ongefundeerde kritiek. De eurozone bezuinigt zich niet kapot, maar heeft zich het afgelopen decennium wel tot over de oren in de schulden gestoken en kapot besteed. Op dit moment betekent 'kapot sparen' voor alle landen, behalve Duitsland, alleen maar: minder snel schulden maken. Ondanks alle kritiek moeten de regeringsleiders van de eurozone doorgaan op het ingeslagen pad. De gekozen aanpak is flexibel genoeg.

Deze week verschuiven de regeringsleiders de prioriteit officieel weg van nominale doelstellingen naar structurele inspanningen. Zo kan duidelijk worden gemaakt dat men niet de ogen sluit voor de moeilijke economische omstandigheden , maar ook de noodzaak van bezuinigingen en houdbare overheidsfinanciën niet loslaat. Tegelijkertijd is het hoognodig om de noodzaak van hervormingen te benadrukken en het tempo hoog te houden. In landen zoals Frankrijk en Italië moet dat tempo zelfs nog fors omhoog.

Altijd met het vingertje richting de Duitsers wijzen is niet correct. De Duitsers winnen toch altijd. In ieder geval mijn zoon, want zijn team won met 3-0.

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

Germany's structural reforms - Role model but not a blueprint

Ten years ago, Germany ended its reform deadlock. The reforms of the Agenda 2010 have contributed to the current strength of the economy but are no blueprint for the rest of the Eurozone.

Today, it is exactly ten years ago that then-chancellor Gerhard Schröder gave his blood-sweat-and-tears speech in the German Bundestag, preparing the country for a series of economic reforms, known as the Agenda 2010. The current strong economic performance of the German economy combined with a balanced budget has given rise to new celebrations of the Agenda 2010, proposing it as a blueprint for structural reforms in the rest of the Eurozone.

The structural reforms were mainly aimed at making the labour market more flexible, creating more jobs and making social security systems more sustainable. The main tools were a reduction of unemployment benefits, privatisation of job agencies to bridge the mismatch between vacancies and job-seekers and tax reductions. In the first two years after the start of the reforms, German unemployment actually continued to increase and breached the 5-million mark. It took until 2006 before the economy started to accelerate again. The economic recovery, however, was not only the result of Schröder’s reforms. The reforms also coincided with wage moderation (even embraced by the unions), corporate restructurings and outsourcing, low interest rates and a favourable global economy with the emergence of the Chinese economy as an important trading partner. Interestingly, the first two years of structural reforms were accompanied by only mild fiscal austerity. Between 2003 and 2006, the German cyclically-adjusted deficit improved by roughly 0.5% GDP on average per year.

During the 2009-crisis, the labour market benefitted from earlier reforms but also – and probably even more – from fiscal stimulus (car scrap scheme) and the subsidised short-time work schemes.
The empirical success of Schröder’s reforms is still disputed. While proponents point to the new strength of the labour market and the economy, critics stress the increases low-wage sector and the growing phenomenon of working poor. Indeed, in the first years of the reforms, new jobs were almost exclusively created in the low-wage sector. This, however, has changed. Since 2010, employment growth has spread through the entire economy, starting to support private consumption.

For the German economy, Schröder’s Agenda 2010 was crucial – not only in terms of the actual but also in a broader meaning. The reforms ended a period of self-pitying about the German role as sick man of Europe and reform deadlock. However, while this symbolic impact can clearly be used as a role model for other Eurozone countries, the actual reforms should not necessarily be used as a reform blueprint. Each Eurozone country will have to find its own blood-sweat-and-tears Agenda 2020.

EU Summit - Don't miss the after-party

Today's and tomorrow's European Summit should leave financial market participants rather untouched. However, the after-party of Eurozone finance ministers Friday evening should be followed closely.

When European leaders meet in Brussels today and tomorrow, the sense of urgency and emergency has disappeared. It does not look to be another night-braking or even make-it-or-brake-it summit, but more like a conversational group therapy. However, while the summit should probably fall short in producing far-reaching results, it should at least pave the way for the first test case of the new fiscal framework.

In recent weeks, the discussion amongst policymakers and economists about the right policy mix has flared up again. While critics of the Eurozone’s mix of austerity and structural reforms cited cockroaches and hamsters to make their point, the proponents have pointed to reform progress in peripheral countries. This week’s European Summit should emphasise the need for reforms and austerity. However, the Summit could give the official green light for a shift of fiscal surveillance. Instead of focussing on nominal deficit targets, the new fiscal framework is likely to shift towards structural efforts, not to an overburdened, battered economy with additional austerity measures. Beneficiaries of this regime change should be France and the Netherlands. Both countries run the risk of receiving a fine for not bringing their fiscal deficit below 3% of GDP this year but have delivered the required structural efforts. These two countries should soon receive an additional year to achieve the nominal deficit target.

Next to the fiscal regime shift, record-high unemployment in the Eurozone will be on the economic agenda of EU leaders. The social and political impact from high unemployment could be the biggest threat to the survival of the Eurozone. European leaders could pick up earlier ideas for some kind of solidarity fund to tackle at least high youth unemployment.

And there is more. Yesterday, a special meeting of Eurozone finance ministers was announced for Friday evening. Obviously, the meeting will be on Cyprus and the unsolved issue of a possible bail-in. Several core Eurozone countries have been pushing for a bail-in of depositors as part of a bail-out package for Cyprus. A bailout without private sector involvement could have problems passing national parliaments, particularly the German Bundestag. German opposition parties already signaled that – contrary to earlier bail-outs – it would not support the government. For a private sector involvement, several options look possible: privatization of state assets, restructuring of the banking sector, a bail-in of depositors and/or bank bond holders or a sovereign haircut as in Greece. Obviously, any of these forms of private sector involvement (PSI) could have unwanted averse effects either on Cyprus (as a bail-in could lead to a wide-spread withdrawal of funds, eventually undermining the entire business model of the economy) or other Eurozone countries as the uniqueness of PSI in Greece would be more than only second-guessed.

Apparently, a new proposal is currently circulating. Cyprus could levy a tax on deposits or increase other taxes to reduce the size of the required bailout package. While this could help improving Cyprus’ debt sustainability, it is questionable whether it would meet core countries’ political demand of some kind of private sector involvement. The discussions at Friday’s meeting will not be easy.

It is obvious: While the big summit could fall short on tangible decisions, the after-party should not be missed.

German IP points at bumpy industrial recovery

German industrial production remained unchanged in January, from an upwardly revised +0.6% MoM in December. On the year, industrial production is down by 1.3%. While production in the manufacturing sector dropped by 0.2% MoM, driven by a sharp decline in capital goods, production in the construction sector more than offset the December decline, increasing by 3% MoM.


The German industry has stabilised after the decline since late-summer. However, it is still not a sharp and healthy rebound. Looking ahead, production expectations and the Ifo index have increased to the highest levels since April last year and the industrial safety net of filling order books and inventory reduction has strengthened gradually since last summer. However, yesterday’s new order data illustrated that the way out of the contraction will not follow a straight line. The negative side-effects from the crisis in most neighbouring countries have become a speed limit to any industrial recovery. Finally, in the short term, there is even a risk that the harsh winter weather could delay the industrial rebound a bit further.

Soft data for the German economy has been more than encouraging for already several months. Now, the first batch of hard data for the start of the year sends mixed signals. While the solid labour market and a sharp increase in retail sales in January already confirmed the growth-supportive role of consumption, the strengthening of industrial activity remains a very gradual and choppy one. At least some kind of rebalancing of the German economy.

All in all, the German economy looks still set to leave the contraction of the fourth quarter behind, returning to growth in first quarter of 2013. However, it currently rather looks like a cosy ride on a country road than frantic ride on a German highway.

ECB meeting – Draghi’s elegant interpretation of “we-never-pre-commit”

As expected, the ECB kept interest rates on hold. ECB president Draghi elegantly balanced between dovish and hawkish comments, keeping all options open. In our view, rates should remain on hold unless the economic recovery fails to materialise in the coming months. Non-standard measures remain the ECB’s most preferred policy option.


The ECB’s macro-economic assessment remained broadly unchanged compared with the February meeting. The ECB still witnesses a stabilisation of the Eurozone economy at a very low level and expects a gradual recovery in the second half of the year. ECB president Draghi stressed the current dichotomy between stabilising and even improving soft data on the one hand and disappointing hard data on the other hand.

The ECB’s macro-economic assessment was also reflected in the latest ECB’s staff projections. In these projections, GDP growth forecasts for both 2013 and 2014 were slightly revised downwards. The new mid-point projection is now -0.5% for 2013 (from -0.3% in the December projections) and 1% for 2014 (from 1.2%). As regards inflation, the projections for 2013 remained unchanged at 1.6% but were slightly revised downwards to 1.3% for 2014 (from 1.4%). These changes were mainly driven by the negative carry-over effect from weaker-than-expected GDP growth in 4Q12 and lower headline inflation rates at the beginning of the year. Broadly speaking, the underlying pattern of the future path of the Eurozone economy has remained unchanged since the December meeting. It looks as if it would need at least one or two months of disappointing hard data before the ECB would change its view.

With the almost unchanged macro-economic assessment, it did not come as a surprise that the ECB kept its risk analysis unchanged. Risks to the economic outlook are still to the downside, while risks to the inflation outlook remain balanced. Notably, the euro exchange rate has disappeared as a downside risk to inflation. Maybe a nice side-effect of the Italian elections and possibly signalling that the ECB is happy with the euro at 1.30 against the dollar.

Sluggish credit growth and, more particularly, the fragmentation of credit growth and credit access for SMEs seems to have become the biggest concern of the ECB. In fact, the Eurozone remains stuck in a double credit whammy, with both the supply and demand side being significantly suppressed. However, the ECB does not seem to have a plan how to tackle this problem.

Ahead of today’s meeting, there was some excitement in financial markets about the ECB’s possible reaction to the Italian elections and the lagging economic recovery. Draghi’s reaction to the Italian elections could become another magic wording. He called it the “angst of the week”. Fiscal reforms in Italy were on auto-pilot and would continue, according to Draghi. Moreover, he reiterated that the rules of the OMT were clear: first a bailout (light or fully-fledged) and then the ECB could consider starting OMT.

While Draghi stubbornly tried to present his fair weather face regarding the economic outlook and the return of growth in the second half of the year, his between-the-lines comments were rather dovish. The introductory statement had the term “accommodative” five times compared with four times in the February statement, Draghi explicitly mentioned that the Governing Council had discussed a rate cut and also said that the “monetary policy stance will remain accommodative as long as needed”. Obviously, the ECB still does not pre-commit in any way but the last statement comes already very close to the Fed’s “rates will remain very low until late 2014”.

All in all, Mario Draghi today had a bit for everyone. A bit of dovishness to dampen the exchange rate and a bit of hawkishness and positivity to counter economic doom-thinkers. The door to a rate cut was not opened further, neither was it closed. It has become a revolving door. In fact, Draghi gave an elegant “we-never-pre-commit” show, keeping all options open.

Eurozone: Adjourned game – again

At last night’s Eurogroup meeting, Cyprus moved another small step closer to a bailout. The big issue of possible private sector involvement remains unsolved.

The relative calm in financial markets combined with some tender signs of economic stabilisation have taken the sense of urgency and emergency from most Eurogroup meetings. Contrary to many meetings over the last years, meetings of Eurozone finance ministers have been healthier for ministers who often suffer from too little sleep. Meetings lasting until the middle of the night have again become an exception and are no longer the rule. The fate of the Eurozone no longer depends on make-it-or-brake-it summits until sunrise. Still, several important fundamental issues, such as shaping the future of the monetary union, are still unsolved. Besides further steps towards a banking union (eg, the definition of legacy assets for possible direct bank recapitalisation through the ESM or a bank resolution mechanism) and the first test for the new fiscal framework, the pending bailout for Cyprus remains a crucial issue.

At last night’s Eurogroup meeting, Eurozone finance ministers confirmed its principal commitment to offer a bailout for Cyprus. In June last year, Cyprus had officially requested such a bailout. Now, with a new Cypriot government in place, the final agreement seems to be closer. Currently, the Cypriot authorities are still negotiating with the Troika on the details of the so-called Memorandum of Understanding. While initially the Cypriot government had tried to negotiate a Spanish-style bailout, only targeted at bank recapitalisation, the sharp deterioration of public finances seems to argue in favour of a fully-fledged bailout. Details of the negotiations were not revealed last night but the announcement that the new Cypriot government has agreed on an independent evaluation of the implementation of the anti-money laundering framework in Cypriot financial institutions shows the willingness to make further concessions. Eurozone finance ministers agreed to “target political endorsement of the programme around the second half of March”.

One of the crucial questions of the probable bailout package is not only its scope (bailout light vs fully-fledged bailout) but also its financing. In several Eurozone countries, concerns have increased that a bailout for Cyprus would see taxpayers’ money bailing out what some have called a money laundry paradise. A bailout without private sector involvement could have problems passing national parliaments, particularly the German Bundestag. For a private sector involvement, several options look possible: privatization of state assets, restructuring of the banking sector, a bail-in of depositors and/or bank bond holders or a sovereign haircut as in Greece. Obviously, any of these forms of private sector involvement (PSI) could have unwanted averse effects either on Cyprus (as a bail-in could lead to a wide-spread withdrawal of funds, eventually undermining the entire business model of the economy) or other Eurozone countries as the uniqueness of PSI in Greece would be more than only second-guessed. As so-often during the euro crisis, the eventual compromise will have to balance both political but also economic calculations.

ECB preview - The return of catenaccio?

The improved but still bleak economic outlook, lower inflationary risks and new euro crisis uncertainty since the Italian elections have given rise to new speculation about a possible ECB rate cut this week. True, a downward revision of the inflation outlook could open the door to a rate cut a bit further. However, new political uncertainty is rather an argument against than for a rate cut. We expect the ECB to keep rates on hold on Thursday. We might even see a tactical shift, with the ECB moving from “attack is the best defence” to good old Italian-style catenaccio, with a well-organised defence forcing the other team to take the initiative.


  Find ING's ECB preview here: http://bit.ly/YOVfae