A repository of solutions to global problems

For two years now, leading policy makers, academics and businessmen have been meeting for discussions in the Global Economic Symposium to provide concrete solutions for the most pressing global governance issues the world will be facing this century. Here is the result of these discussions: a repository of concrete policy proposals.

No German miracle

By: Wolfgang Munchau

The bottom line is that Germany’s economic performance will almost certainly improve relative to the eurozone average in the years ahead, but also that the current wave of enthusiasm is much exaggerated.

Eurozone Meltdown

This is the first in a new series of regular briefing notes on important issues facing the euro area. In this briefing note we are asking whether the euro area could ever break up. We think not. But we are not as certain as we used to be.

Bundesbank asks President Wulff to fire Sarrazin

Germany’s absurd “Jewish gene” scandal takes a decisive turn, as the board of the Bundesbank gave a unanimous recommendation that President Wulff should fire Thilo Sarrazin; Wulff like to accept the recommendations, but formidable legal obstacles remain; the ECB extended the unlimited liquidity support operations until early next year, but decision was not unanimous; a deal in principle was finally agreed on EU banking supervision, which marks a victory for those opposed to a better coordinated EU system; the European Commission’s proposals on naked short are much closer to Germany’s law than meets the eye; Eurostat confirms 1% growth for eurozone in Q2; French trade unions consider Woerth a liability in pension reform debate; President Giorgio Napolitano said the fight against youth unemployment should become Italy’s key strategic priority; Paul Krugman said Germany has done worse than the US on growth, since the crisis, but much better on employment; Peter Boone and Simon Johnson, meanwhile, argued that Ireland is essentially insolvent.

Eurozone bond spreads back to their previous high

Irish spreads have reached 357bp, an all time record, other peripheral spreads are close to the level at early May; the majority of Germans have some sympathies with Thilo Sarrazin, the renegade Bundesbanker, and oppose his sacking; the Bundesbank, however, is set to fire him, but is still locking for legal support to make a watertight case; the IMF says that a Greek debt default is unlikely; the ECB is expected to decide on an extension of its collateral regime; Schauble says lack of EU support for a financial transactions tax poses some risks for the German budget; EU officials and MEPs are due to meet today to hammer out a compromise over European banking supervision; the European Commission plans to introduce new rules to make it more difficult for member states to proclaim unilateral short sale bans; China’s manufacturing economy, meanwhile, remains surprisingly robust; a group of 12 countries, including the UK, France and Germany, supports the idea of a Tobin tax to fund development aid.

European Commission rejects German proposal for a financial transactions tax

A report suggests that a transaction tax would have numerous unintended consequences, and might not be realistic; Spain halves the current year deficit; eurozone unemployment remains at 10%, with wide difference between Austria at the low end, and Spain at the top; youth unemployment is deteriorating in some countries, notably Italy; Sarkozy’s proposals for a Franco-German tax union meet with a cool response in Germany; Anglo-Irish Bank reveals colossal losses for the first half of this year; Ralph Atkins discusses just how resilient the European economy is likely to be, when faced with a global downturn; the Bundesbank is expected to make a decision on the future of Thilo Sarrazin, a director, after making racist remarks; Wolfgang Munchau, meanwhile, says the Sarrazin affair is ultimately the result of an excessive form of central bank independence.

The Sarazin affair reaches the Bundesbank

The Bundesbank condemns its board member Thilo Sarrazin over his remarks of a “Jewish gene”, but might not be able to get rid of him; Frankfurter Allgemeine says if Sarrazin ever wanted a serious debate on immigration, he clearly failed; Irish banks have to repay €25bn in debt; Japan’s central and government launch a joint stimulus to combat the rise in the yen; the eurozone’s economic sentiment index has continued to rise this month; Le Monde discussing the economic divergence between France and Germany; Le Monde also has a separate discussion on the inversion of the growth patterns within the eurozone, and its impact on the ECB’s monetary policy.

No German miracle

By: Wolfgang Munchau

The bottom line is that Germany’s economic performance will almost certainly improve relative to the eurozone average in the years ahead, but also that the current wave of enthusiasm is much exaggerated.

A Bundesbanker’s “Jewish gene” comment shows Germans the limits of extreme central bank independence

Germany’s political class expresses outrage at comments by Bundesbank board member Thilo Sarazin; but legal opinion in Germany is that Weber has no powers to fire his colleague; ECB is likely to extend unlimited finance operations until next year; Bernanke gave a cautious speech at Jackson Hole, and appeared to rule out the possibility of a double-dip and deflation; Jean Claude Trichet warns about a lost decade and public debt overhang; Charles Bean and John Taylor disputed whether macro-prudential regulation is better placed than monetary policy to prick asset bubbles; Wolfgang Munchau writes that Germany’s growth performance must be put into context: It is neither impressive, nor healthy; a Financial Times editorial, meanwhile, calls on the Irish government to end the bank guarantees and to force debt-equity conversions.

Despite recovery, the credit crunch actually gets worse.

Credit to companies falls in July both on monthly and annual basis; eurozone M3 growth also weaker than expected by analysts; there is some relief for Spanish banks, as two European clearers now accept Spanish government bonds as collateral; Wolfgang Schauble appoints Germany’s chief insurance regulator as the new head of his European department; he also warns Germans that recovery won’t lead to a more relaxed fiscal stance; according to a new CEBS blueprint, banks should adopt a new stress test strategy – the so-called reverse stress tests; Italian bond yields fall, but spread to Germany increases; a new poll, meanwhile, suggests that a large majority of Europeans want better policy co-ordination.

The bond market crisis is returning

After the Irish downgrade, peripheral European bond spreads are back to pre-crisis levels; further bad news from the US with a shockingly large decline in existing home sales; Wall Street Journal says that no matter what happens now, it will feel like a recession; Irish banks face difficulties raising cash at the ECB, following S&P’s downgrade decision; Germany defies the pessimism, for now, as the Ifo reaches highest level since June 2007; Sarkozy puts exchange rate volatility at the top of his G20 agenda; the opinion polls are still getting worse for Merkel and Westerwelle in Germany; George Magnus says printing money is the right thing to do; there is some evidence, meanwhile, that the welfare state has helped cushion the macroeconomic impact of the recession.

Back to negative news on the economy

Global yields fall, as investors fear double-dip recession and further disinflation; yen reaches 15-year high; the persistent high level of US housing inventories suggests that a price decline is likely within a couple of months; the next ISM manufacturing survey is expected to show a US economy on the brink of recession; Gavyn Davies says says he is very concerned about a double-dip recession; Wolfgang Munchau says the next financial crisis will not be as big as the last one, but more dangerous because it will hit us in a weaker position; S&P cuts the sovereign credit rating for Ireland by one notch to AA-; CDU parliamentarians are unhappy with Merkel, and criticise lack of direction; Italy pays a much smaller percentage of its tax take on welfare compared to other European countries; Alan Beattie, meanwhile, argues in the FT that Greece should restructure, but not just yet.

Zapatero prepares further tough economic measures

Spain is preparing a new round of budget cuts and tax increases, including a new higher income tax band; the German economy is still roaring ahead, but the rest of the eurozone is losing momentum; some stress has returned to the bond markets, as Irish bond spreads are back close to the record levels in May; political Paris is full of rumours about a change at the Matignon – Michele Alliot-Marie is tipped to succeed Francois Fillon; European companies are increasingly turning to the US bond markets to raise cash; Germany’s SPD drops commitment to the increase in the pension age to 67; Le Monde, meanwhile, is fretting about the strong growth gap between France and Germany.