German job miracle becomes ever harder to sustain

The country’s long-lasting labour market revolution is half-kaput. New jobs are still appearing at an amazing rate. But this is no longer translating into falling unemployment. And an ill-considered labour market re-regulation is poised to worsen the deep structural problems.

Germany’s labour market is simultaneously striding forward and stagnating. The apparent paradox springs from one positive trend, migrants and women joining the labour force; and two deep-rooted structural problems, a skills mismatch and regional inflexibility. Unfortunately, the government has embarked on a re-regulation of the labour market that is likely to worsen the problems.

Since 2005, Germany has seen an outright labour-market miracle. The number of people with jobs has risen by 4 million, or 11 percent. The quantity of GDP growth needed for net job creation has dropped in half, to just 1 percent. Continue reading

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German court’s “No, but” may undermine ECB’s OMT

The constitutional court strongly implied that the central bank’s bond-buying programme is outside its remit. OMT defenders will worry, but there are hints that the higher European court can make things right. Still, the decision will reinforce German doubts about the ECB.

From legal and economic perspectives, the German constitutional court’s judicial opinion on the ECB’s bond-buying programme will not have immediate consequences. Politically, however, the Karlsruhe judges’ statement is dynamite. Continue reading

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German investment drought imperils growth prospect

Angela Merkel has vowed to end Germany’s long-standing freeze on public and private investment. But she is only considering symbolic actions that will not reverse two decades of negligence. The country’s depleting infrastructure is threatening its long-term economic potential.

The Kiel Canal – the world’s busiest man-made waterway, which connects the North Sea and the Baltic Sea – had to be partially closed last year after worn out locks built in 1914 broke down. The average German car commuter wastes eight working days per year in traffic jams, because Autobahns, once a prime symbol of national pride, have been neglected. On the Cologne beltway, a major bridge crossing the river Rhine close to the headquarters and main factory of pharmaceutical giant Bayer  BAYGn.DE is so dilapidated it has been declared off-limits for heavy lorries, while ordinary cars must slow down to a demeaning 60 kilometres per hour.

The ramifications of Germany’s public-investment thrift have become increasingly visible in everyday life. Angela Merkel, who pledged to tackle the growing problem, is failing to deliver on her promise. For two decades, Europe’s largest economy has been neglecting maintaining its roads, railways and waterways, resulting in a huge investment backlog. The dearth of public investment adds to a longstanding investment restraint in the private sector, which will only be partly offset by a cyclical recovery in 2014. Its decaying capital stock puts the growth perspectives of Europe’s economic powerhouse at risk.

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Merkel a collateral victim of U.S. spying scandal

Widespread U.S. spying on German Internet and mobile-phone users is angering voters. Angela Merkel doesn’t seem to take the debate seriously. It’s unclear what she knew about possible German involvement. Her battered credibility could have electoral consequences.

The man who can spoil Angela Merkel’s electoral victory on Sept. 22 isn’t her hapless Social Democratic challenger Peer Steinbrueck but Edward Snowden. The U.S. whistleblower’s revelations have turned into a major campaign issue in Germany, and Merkel has utterly mishandled the debate. Voters still don’t know what she knew, when she knew it, and they are still waiting to find out about the German government’s exact involvement in the spying. Continue reading

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Axel Springer gets top euros for dead trees

It’s easy to see why Germany’s largest publisher wanted to sell a third of a declining domestic print business. It speeds up the move to digital. It’s harder to know why a buyer was willing to pay 920 mln euros, 9.7 times 2012 EBITDA. Springer shareholders should be happy.

Germany’s largest publisher has just shown that it is still possible to make lots of money with perennially declining newspapers and magazines – by flogging them at an inflated price. Continue reading

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Football cleanup won’t hit goal with fans offside

Yet another scandal is shaking up European football. Italian authorities are investigating 41 clubs on suspicion of tax fraud and money laundering. The case highlights the sport’s poor governance and questionable integrity. Unfortunately supporters may not care that much.

European soccer faces yet another scandal. Italian tax police are investigating 41 clubs – including all but two of the Serie A teams – on suspicion of money laundering and tax evasion in the transfers of players. Investigators searched the clubs, and seized potential evidence. Continue reading

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Merkel’s manifesto serves EU better than Germany

The German chancellor’s campaign for a third term relies on promises of more redistribution and regulation. Germany can’t afford such left-of-centre lavishness for long. But it keeps anti-euro forces at bay in Germany, giving Merkel a cover to push her “more Europe” agenda.

In Germany, two left-of-centre parties are competing for votes in the Sept. 22 election: the traditionally left-leaning Social Democrats and Angela Merkel’s supposedly conservative CDU. In her campaign for a third term, Merkel is promising higher pensions, more childcare benefits, tighter regulation of labour markets and rent control. All this comes with a price tag of up to 28.5 billion euros. Continue reading

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Investment freeze darkens German economic prowess

Europe’s strongest economy has been suffering from falling investment for six quarters in a row. That unexpected trend isn’t due to cyclical factors alone. If it isn’t reversed, it could endanger Germany’s medium-term growth prospects.

Germany passes for Europe’s economic strongman. It may in fact be weaker than it looks. For years, the low level of corporate capital expenditure has undermined the country’s industrial future. While real GDP is already 1.3 percent above the pre-crisis peak of early 2008, real equipment investment is 16.5 percent below what it was then. Moreover, it has been falling for six quarters in a row. Continue reading

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The invisible hand kills morals – and mice

Economists may love the free market, but mice should avoid it. A study shows that people value a creature’s life less when markets take the place of individual consciences. A fistful of euros can be harmful. Unfettered capitalism has hidden moral costs.

For centuries, economists have argued that nothing beats a free market for efficiency. Unfettered competition leads to lower prices and better products, more innovation and greater choice. But market forces may also make people less ethical and more selfish.
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