There’s an important election coming up on 22 September. Germany goes to the polls and everyone’s expecting current Chancellor, Angela Merkel, to be reinstated. If you didn’t catch my previous post, click here to get a quick primer on the election and the parties involved. Regardless of where the votes go later this month, there are several policy steps that Germany will have to address in 2014 regarding its European neighbors: bonds, bailouts, and banking unions. Read more
Posts tagged ‘Germany’
If you haven’t heard mention of it in the news, or read about it in the papers or your portfolio manager’s commentary, there’s an election coming up in Germany. It’s important too! The outcome of this election has implications well beyond Germany, and well beyond Europe. In this post, we’ll look over the basics of the election, so that you’ll know how to make sense of the results when they come later this month.
First, why is this election so important? There are a couple of main reasons. Germany is one of the main centres of gravity for the European Union. Their export-driven economy is the engine driving a nascent EU recovery, and Germany’s ability to continue churning out that growth is highly interrelated with the domestic policy agenda of the government. Secondly, Germany’s one of the big wheels in the EU and almost nothing gets done without its approval. Read more
Growth is good. So, even at a revised 0.1%, German GDP growth could still be considered good. Sure, it wasn’t as much as economists had forecasted, but growth still beats recession – especially, after several months where the economic malaise in the Eurozone threatened to turn into a Teutonic Plague as well. The actual German output data has been much better than the dreary business surveys. Manufacturing orders (up more than twice what was forecast), industrial production (up 1.2% versus expectations of -0.1%), trade (surplus of€18.8 billion), and consumption all looked strong as the first quarter ended. Read more
Spain seems to have survived the most recent scrutiny by ratings agencies Moody’s and Standard & Poor’s. Last week, S&P hit Spain with a two-notch downgrade, but still kept them at investment grade…just barely though. Then this week, Moody’s confirmed Spain’s government bond rating at Baa3. This concluded a review for a possible downgrade that began back in June.
When moving Spain from BBB+ to BBB-, S&P focused on five factors: Spain’s delay in asking for ESM assistance, a deepening recession, Germany’s recent comments that any direct bank recapitalization by the ESM once the banking union is set up should exclude “legacy assets,” a deteriorating political climate, and likely fiscal slippage. Moody’s decision to confirm the Baa3 rating was based on three stated factors: a probable request for a precautionary credit line from the ESM (they viewed this as a positive), the government’s commitment to fiscal and structural reforms, and progress towards recapitalizing the banks.
Wednesday, September 12, 2012 delivered some clarity and some confusion in Europe. In Germany, the judges of the Constitutional Court, wearing their red robes and hats, cleared away objections to German approval of the European Stability Mechanism, the Eurozone’s permanent bailout fund. Ratification of the ESM was challenged based on an argument that it contravened the German constitution. With this obstacle removed, the proposed €700 billion fund can continue to move forward; however, the German high court established a price. The judges ruled that a cap of €190 billion must be placed on German contributions before official ratification could occur. The ruling evidently doesn’t preclude Germany from contributing more in the future, it just establishes that the parliament would have to return, hat in hand, to ask for approval.
Last week saw two German defeats within 24 hours. On the football field, Mario Balotelli led Italy to a 2-1 victory over Germany in the UEFA Euro 2012 semifinals. In Brussels, it was another Mario that dealt Germany a defeat of sorts at the Eurozone summit. Italian prime minister, Mario Monti successfully pushed aside German objections and won agreements to create a single Eurozone banking regulator and to allow bailout funds to lend directly to struggling banks.