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December 12, 2017
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1
Elections, referenda and politics have held quite a few surprises in the last 1 ½ years. While there is a general feeling among voters that things are moving in the wrong direction – although there are certainly differences of opinion about the direction itself – the outcomes of recent elections and polls have probably done very little to counter their disenchantment. One reason for this frustration is the increasing complexity of political issues. They just cannot be resolved using the simple answers offered by many populists. Voters crave such simple answers, however, as throughout evolution humans have been very successful in reducing complexity by applying heuristics, simple rules drawn from experience. [more]
December 11, 2017
2
Happy holidays. This is what market sentiment feels like at the moment, with risk assets at or close to multi-year highs. Faster progress on tax reform bills in the US and the EU-UK exit deal provided the last positive catalysts. They add to a favourable backdrop of strong economic growth, increasingly supportive fiscal and regulatory policy, and tightening but still easy monetary policy. [more]
December 8, 2017
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3
No real surprises hidden in the “Saint Nicholas” reform package from Brussels, a detailed set of reform proposals and communications that the European Commission published as a “roadmap” for deepening EMU. The proposals build on Commission President Juncker’s September State of the Union speech and, in essence, match closely with the French vision of more stabilization and risk-sharing in the EU, while they also try to meet German demands for better supervision of fiscal rules. The strong focus on anchoring any further integration of the Monetary Union - such as the reform of the ESM and the introduction of a Eurozone budget - in the institutional framework also illustrates the wariness in Brussels of being sidelined in its fiscal competencies and to allow the euro area to further develop on its own. [more]
December 5, 2017
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4
The EU Commission proposed new mandatory CO₂ targets for passenger cars. These targets cannot be achieved with combustion engines alone. Stricter regulation thus enforces the electrification of the power train. However, the average car buyer currently does not play to the tune of regulatory policy and turns a cold shoulder on most alternative fuels. There are other climate policy instruments that outperform the CO₂ targets for passenger cars in terms of meeting the environmental targets and economic efficiency. [more]
December 5, 2017
Region:
5
We have lifted our GDP forecasts for 2017 and 2018 about half a point to 2.3%, as capex is boosted by an improved export outlook, which in turn is driven by the global capex cycle. The difficult formation of a new government – while not encouraging with regard to Germany’s longer-term challenges – should have limited impact on the short-term outlook. [more]
December 1, 2017
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6
The fluid political situation in Germany threatens to stall EU policymaking in a number of fields, above all the build-out of the euro area. The EU summit on Dec 14/15 is unlikely to yield an agreement on a potential roadmap for reforming the monetary union making it even more difficult to take final decisions in June 2018 as envisaged by the EU Commission. This will in return dampen optimism that a French-German tandem will provide a fresh impetus to the EU as a whole before the European Parliament elections in 2019. [more]
December 1, 2017
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7
Beyond the Catalan referendum, independence movements in Europe seem to enjoy a revival. But calls for greater autonomy or even secession are not just about cultural identity - financial discrepancies between regions also play a major role. Unsurprisingly, most of the regions with strong separatist tendencies are amongst the wealthiest in their respective countries. Calls for (more) independence seem to be loudest when national financial equalization mechanisms lead to results that are perceived as disproportional, such as in Spain or Italy. [more]
November 28, 2017
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8
On November 3, the Dax reached a new record high, at 13,505. It has more than doubled since 2010. However, the commonly used total return index is unsuited for international comparisons. In addition, the Dax which is dominated by manufacturing firms is not representative of the German economy as a whole, which relies much more on the services sector. Despite the recent gains, the German stock market remains underdeveloped. With a market cap of 57% of GDP, Germany continues to rank last among the large European countries. This is not least due to a pension system which hardly involves the capital market, to risk-averse retail investors and to a large share of family-owned companies. [more]
November 23, 2017
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9
Between 1990 and 2016, Germany reduced its greenhouse gas emissions (GHG emissions) by 27.6%. Excluding the significant downtrend in the first few years after the German reunification, GHG emissions still declined by more than 19% between 1995 and 2016. This is a considerable success, particularly in an international comparison. After all, global energy-related carbon emissions increased by more than 50% during the same period. [more]
November 15, 2017
10
The euro’s second place among the world’s most important reserve currencies has remained so far undisputed. The single currency’s share of allocated foreign exchange reserves stabilised at 19.9% in Q2, according to IMF data. The US dollar easily defended its position as the dominant currency in the international monetary system. But both the euro and the dollar gradually gave some way to other reserve currencies. Regardless of whether this observation reflects structural developments or rather (temporary) shifts in reserve allocation - it certainly fuels the discussion about the 21st century’s leading reserve currency (or currencies). [more]