German industry declines at an annualised rate of over 50%

 

We have been among the biggest pessimists about the German economy, but it appears that our own forecast for a 4-6% fall in German economic growth this year is looking a tad optimistic after yesterday’s horrendous data for industrial orders in January. The orders were down 8% with respect to the previous month, and 37.9% lower than a year before (foreign orders were down 42%), reports the FT. Apart from Japan, Germany’s economy is among the worst-affected by the slump in global demand.

 

Dieter Wermuth, in his blog Herdentrieb, has calculated that the annualized rate of decline over the last six months is -51.4%. So if this continues until the summer – and there are no indications why it should not – this means that Germany will have lost half of manufacturing output. Industrial production – data due out Thursday – will show a similar decline. (So this means we are heading into Great Depression territory just in time for the election. Germany is well on course for a double-digit decline of peak-to-trough economic growth, unless the economy stabilise mid-year. We don’t see that happening.)

 

 

 

US calls for a tripling of IMF funds

The US raised the stakes ahead of the G20 meeting in London this weekend, calling for a tripling of the International Monetary Fund’s firepower and bigger fiscal stimulus measures worldwide reports the FT. US Treasury Secretary Tim Geithner proposed that the IMF, which has about $250bn in easily usable resources, should get up to $500bn more to help it combat instability in crisis-struck countries. (This is more than the IMF itself has asked for, and shows to us how desperate these guys are to generate some positive newspaper headline about the G20.) Geithner also said that each G20 country should set a target of spending 2% of GDP for 2009 and 2010 in fiscal stimulus, and that the IMF should monitor progress towards that goal. European finance ministers rejected calls for a global stimulus earlier. They countered that their automatic fiscal stabilisers, which increase spending when the economy slows down, are much higher than those in the US.

 

The FT has put together the different wish lists that the G20 countries bring to the summit in London this weekend.

 

 

The disarmed European executive

Writing in Les Echos, Alexandre Counis and Jacques Docquiert write that the EU is ill equipped for this crisis. When the banking sector was collapsing requiring immediate rescue actions, the Commission was still contemplating about how to apply competition rules. The Stability and Growth Pact and its limited flexibility are insufficient in the current situation. With no money to raise from taxpayers of bonds the EU remains strapped by constraints. Amid a lack of political will and the rigidity of its instruments the only proactive role it can play for the recovery of financial markets is to reinforce norms and supervision.

 

 

Germany limits manager payments

The FT Deutschland reports that the German government has agreed on a draft law to limit manager payments with the following points: share options can be cashed in after 4 instead of 2 years; the supervisory board receives more power to cut managers salary in bad times; remuneration decisions are to be taken by the entire supervisory board, which in turn gets also more liable if excessive remunerations have been granted. 

 

Recovery for CEE currencies

The Hungarian Forint and other Eastern European currencies recovered yesterday after a rally on stock exchanges and speculations about an intervention of the central bank. The Forint appreciated by 1.8% against the euro, the polish Zloty by 1.2% and the Czech krona by 1.1%. FT Deutschland quotes analysts as saying that they expect currencies to recover from what they call an overshooting panic. Meanwhile, the situation remains critical for Latvia and Ukraine, where CDS are at record levels.

 

 

Don’t blame bankers but the government
The Irish Independent warns that the widespread public belief according to which Ireland’s misery is only the fault of some bankers is not only wrong but also dangerous as it prevents the government from taking the right policy actions. Ireland has not only to deal with a global credit crisis, a banking crisis and a construction crisis, but also a fiscal crisis. In the five years of the bubbles public spending rose by 50% with permanent commitments that need permanent taxation to pay for them. The current gap between taxes raised and money spent is 8% of GNP, which is €12bn in ready money. This has nothing to do with the bankers or the global recession. It is entirely down to Bertie Ahern's administration.
 
 
More stimulus in Belgium
The Belgian government is considering further relaunch measures according to Le Soir.  Prime minister Herman Van Rompuy says that the 2bn (including net income rise, VAT cuts for construction, higher unemployment benefits and support for companies in difficulties) might not be sufficient. A new expert group is to give advice.
 

…but not in Finland
The Finnish economic affairs minister Mauri Pekkarinen said that Finland should not tighten the belt more than other EU countries did, adding that Finland could afford some debt stimulus, reports Newsroom Finland . "By scraping along we would only pay for our EU partners' splurging," he added. He proposed bringing security and defense procurements forward in order to prevent sound companies going under and to keep people working until the next upturn.


Greek central bank pressures commercial banks  
Banks will have to cut interest rates paid on deposits in order to improve lending conditions, reports Kathemerini. Bank of Greece Governor Giorgos Provopoulos is believed to have threatened commercial lenders with fines if they do not take his advice. Central bank officials said they want the pace of credit expansion to remain above 10 percent this year. However, some industry sources admit this is unlikely to happen as the economy slows under the weight of the global crisis.
 

 

European Parliament adopts proposal for a euro area wide bond issue

Jean Quatremer has an interesting history behind yesterday surprise vote by the European Parliament in favour a pan-European bond issue. Quatremer writes that Delors proposed it back in 1993, but the idea was rejected by Germany and France. In 1999, Yves Thibault de Silguy made a similar proposal, again to no avail. Now German is still blocking, but at least has indicated that it will not allow a member state to default.

 

 

 

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