Thursday, November 30, 2006
Tuesday, November 28, 2006
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Thursday, November 23, 2006
Wednesday, November 22, 2006
Thursday, November 16, 2006
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Saturday, November 11, 2006
Thursday, November 09, 2006
Experts give harsh verdict on Merkel's policies (FT)
Germany's top economists issued a devastating verdict on Wednesday on the policies of Angela Merkel, the chancellor, saying they had become hostage to "contradictory political interests".
The annual report of the "council of wise men" which advises the government underscores mounting disappointment among experts and business at the government's inability to use the strong recovery to push through reforms.
Economic policy was all the more "disappointing" because "the year 2006 offered not only good political conditions" for decisive reforms "but also the most supportive cyclical environment in years", the high-profile panel of five economists said.
In a move that will put further pressure on Ms Merkel, the economists warned that the window of opportunity to push through reforms was narrowing and would close by the end of next year.
"Those decisions that are not being taken next year are likely to remain unaddressed for the rest of this parliament's life, and that would be to the detriment of the common good," they said.
The report's harsh assessment, coupled with its optimistic view of the current economic rebound and a higher-than-expected growth forecast for next year, underlined the growing rift between Germany's robust performance as an economy and the lack of progress in structural reforms.
Germany's latest export statistics, also released yesterday, illustrated the recovery's strong momentum, showing a 6.6 per cent month-on-month rise in September. That brought the consolidated trade surplus of Europe's biggest economy to a seasonally adjusted €15bn ($19bn, £10bn).
Economists expect growth in the three months to October to match that of the second quarter, the strongest in more than five years. Unemployment has declined since the beginning of the year, while investment and production - although not consumer spending - have risen substantially.
In their report, the "wise men" predicted gross domestic product would rise by 2.4 per cent this year and by 1.8 per cent in 2007, exceeding the government's own estimate for next year.
The policy section of the 607-page report, however, attacked the government even in those areas where Ms Merkel and her Christian Democratic-led "grand coalition" could have credibly claimed a degree of success.
The rapid fall in the budget deficit, presented by the government as a big achievement, concealed a "persistent need for a further consolidation of public finances through spending cuts and tax privileges", the experts wrote.
They also dismissed the coalition's draft reform of the mandatory health insurance system, agreed after months of wrangling between the CDU and its Social Democrat coalition partners over the summer, as a "failure".
The draft reform of corporate taxation, which has drawn mildly positive reactions from business despite misgivings about a planned widening of the tax base, also came in for criticism.
Copyright The Financial Times Limited 2006
The annual report of the "council of wise men" which advises the government underscores mounting disappointment among experts and business at the government's inability to use the strong recovery to push through reforms.
Economic policy was all the more "disappointing" because "the year 2006 offered not only good political conditions" for decisive reforms "but also the most supportive cyclical environment in years", the high-profile panel of five economists said.
In a move that will put further pressure on Ms Merkel, the economists warned that the window of opportunity to push through reforms was narrowing and would close by the end of next year.
"Those decisions that are not being taken next year are likely to remain unaddressed for the rest of this parliament's life, and that would be to the detriment of the common good," they said.
The report's harsh assessment, coupled with its optimistic view of the current economic rebound and a higher-than-expected growth forecast for next year, underlined the growing rift between Germany's robust performance as an economy and the lack of progress in structural reforms.
Germany's latest export statistics, also released yesterday, illustrated the recovery's strong momentum, showing a 6.6 per cent month-on-month rise in September. That brought the consolidated trade surplus of Europe's biggest economy to a seasonally adjusted €15bn ($19bn, £10bn).
Economists expect growth in the three months to October to match that of the second quarter, the strongest in more than five years. Unemployment has declined since the beginning of the year, while investment and production - although not consumer spending - have risen substantially.
In their report, the "wise men" predicted gross domestic product would rise by 2.4 per cent this year and by 1.8 per cent in 2007, exceeding the government's own estimate for next year.
The policy section of the 607-page report, however, attacked the government even in those areas where Ms Merkel and her Christian Democratic-led "grand coalition" could have credibly claimed a degree of success.
The rapid fall in the budget deficit, presented by the government as a big achievement, concealed a "persistent need for a further consolidation of public finances through spending cuts and tax privileges", the experts wrote.
They also dismissed the coalition's draft reform of the mandatory health insurance system, agreed after months of wrangling between the CDU and its Social Democrat coalition partners over the summer, as a "failure".
The draft reform of corporate taxation, which has drawn mildly positive reactions from business despite misgivings about a planned widening of the tax base, also came in for criticism.
Copyright The Financial Times Limited 2006
VW/Scania (FT)
Bernd Pischetsrieder's resignation from Volkswagen on Tuesday is the latest spanner in the works for the potential three-way combination of Sweden's Scania, Germany's MAN and VW's heavy truck division. It was already looking messy. On the same day, Investor, the investment vehicle of Sweden's Wallenberg family, raised its stake in Scania, which is defending itself against a bid from MAN. With family trusts, the Wallenbergs now have a third of the voting rights - sufficient to block a merger.
This has strengthened their negotiating position in two ways. First, they can push for a much higher price for the voting shares - at least the SKr519 they paid for shares on Tuesday, rather than the originally mooted SKr475. This starts to make a deal look expensive for MAN. Second, the Wallenbergs now have more clout to argue for other concessions, bearing in mind their belief in Scania's superior management, margins and growth prospects.
Both these factors may also increase the likelihood that no deal will be done, particularly since the man who has been pushing for one will disappear from the scene at the end of the year. VW's new management may still pursue a transaction. After all, its chairman, Ferdinand Piëch, was chief executive when the company took its original stake in Scania. But he has a lot on his plate. As well as overseeing a company that has just jettisoned its chief executive in the midst of a restructuring without offering an explanation, he also sits on the supervisory board of Porsche, which just said it may increase its stake in VW to 30 per cent.
A three-way Scania-MAN-VW combination, perhaps allowing the Wallenbergs a role, may not be imminent but it still seems feasible, with a softer approach by MAN. The greater risk - greater than no deal at all - is a fudged deal that would fail to deliver real consolidation.
Copyright The Financial Times Limited 2006
This has strengthened their negotiating position in two ways. First, they can push for a much higher price for the voting shares - at least the SKr519 they paid for shares on Tuesday, rather than the originally mooted SKr475. This starts to make a deal look expensive for MAN. Second, the Wallenbergs now have more clout to argue for other concessions, bearing in mind their belief in Scania's superior management, margins and growth prospects.
Both these factors may also increase the likelihood that no deal will be done, particularly since the man who has been pushing for one will disappear from the scene at the end of the year. VW's new management may still pursue a transaction. After all, its chairman, Ferdinand Piëch, was chief executive when the company took its original stake in Scania. But he has a lot on his plate. As well as overseeing a company that has just jettisoned its chief executive in the midst of a restructuring without offering an explanation, he also sits on the supervisory board of Porsche, which just said it may increase its stake in VW to 30 per cent.
A three-way Scania-MAN-VW combination, perhaps allowing the Wallenbergs a role, may not be imminent but it still seems feasible, with a softer approach by MAN. The greater risk - greater than no deal at all - is a fudged deal that would fail to deliver real consolidation.
Copyright The Financial Times Limited 2006
Tuesday, November 07, 2006
CDU retreats on labour market reforms (FT)
Chancellor Angela Merkel's Christian Democratic Union yesterday endorsed a proposal to increase unemployment benefits for older jobseekers, offering the most graphic illustration yet of a swing of the political pendulum away from structural reforms in Germany.
Monday, November 06, 2006
Merkel retreats on labour market reforms (FT)
Chancellor Angela Merkel’s Christian Democratic Union on Monday endorsed a proposal to increase unemployment benefits for older jobseekers, offering the most graphic illustration yet of a swing of the political pendulum away from structural reforms in Germany.
The proposal to link jobseekers’ benefits to the amount they contributed to the insurance scheme before losing their jobs is a U-turn from the unpopular labour market and social security reforms launched by Gerhard Schröder, Ms Merkel’s predecessor, in 2003.
“The pendulum is swinging again towards a stronger state, a bigger state,” Elga Bartsch, economist at Morgan Stanley, said. “We are heading for a more populistic, more protectionist electoral campaign in 2009.”
Although the CDU’s initiative is unlikely to become government policy, it will raise doubts among business and economists about the ability of Ms Merkel’s left-right coalition to reform Germany’s over-regulated labour market and its welfare state.
Most economists think the government should take advantage of the economic recovery and increased jobs to push through reforms.
The proposal, endorsed yesterday by the CDU Präsidium, its top decision-making body chaired by Ms Merkel, underlines the party’s growing misgivings about the pro-reform, business-friendly electoral platform many CDU officials think was responsible for Ms Merkel’s modest showing at last year’s election.
Tabled by Jürgen Rüttgers, the left-leaning CDU state premier of North Rhine-Westphalia, the motion will come before the party’s November 27th congress. After Monday’s endorsement, it is likely to gain a majority. The calls by Mr Rüttgers for a more socially sensitive platform have gained traction since he urged the CDU in August to shed its “capitalist” image and renounce “old lies”, including the notion that “tax cuts lead to more investment and more jobs”.
The CDU’s retreat from the tough reform agenda it adopted at its landmark Leipzig party congress of December 2003 coincides with a drive by the Social Democratic party, its long-time rival and partner in the coalition, towards the political centre as the two groupings compete for middle-class voters.
Confidential opinion surveys recently commissioned by the CDU and its CSU sister party in Bavaria show these voters are becoming less inclined to accept sacrifices. “The CDU does not want an end to the reforms, but it wants an end to the blood-and-tears rhetoric,” said one person close to Ms Merkel.
Under Mr Rüttgers’ proposal, employees who lose their jobs after working for 40 years would be entitled to 24 months of salary-indexed benefits instead of 12 today. The measure would cost €700m a year, to be financed by cutting benefits to younger jobseekers.
After Mr Schröder’s 2003 reforms, jobseekers are entitled to one year of such relatively generous benefits after losing their jobs. They then receive a flat-rate, €345-a-month payment.
This and other unpopular reforms were blamed for a string of electoral defeats for Mr Schröder’s SPD, culminating in his ousting from the chancellery last year.
Ms Bartsch questioned the fairness of Mr Rüttgers’ proposal, saying “our calculations show that people who are now nearing retirement will actually get more out of the tax and social security contributions they have paid in their lifetime than those who start working now”.
Copyright The Financial Times Limited 2006
The proposal to link jobseekers’ benefits to the amount they contributed to the insurance scheme before losing their jobs is a U-turn from the unpopular labour market and social security reforms launched by Gerhard Schröder, Ms Merkel’s predecessor, in 2003.
“The pendulum is swinging again towards a stronger state, a bigger state,” Elga Bartsch, economist at Morgan Stanley, said. “We are heading for a more populistic, more protectionist electoral campaign in 2009.”
Although the CDU’s initiative is unlikely to become government policy, it will raise doubts among business and economists about the ability of Ms Merkel’s left-right coalition to reform Germany’s over-regulated labour market and its welfare state.
Most economists think the government should take advantage of the economic recovery and increased jobs to push through reforms.
The proposal, endorsed yesterday by the CDU Präsidium, its top decision-making body chaired by Ms Merkel, underlines the party’s growing misgivings about the pro-reform, business-friendly electoral platform many CDU officials think was responsible for Ms Merkel’s modest showing at last year’s election.
Tabled by Jürgen Rüttgers, the left-leaning CDU state premier of North Rhine-Westphalia, the motion will come before the party’s November 27th congress. After Monday’s endorsement, it is likely to gain a majority. The calls by Mr Rüttgers for a more socially sensitive platform have gained traction since he urged the CDU in August to shed its “capitalist” image and renounce “old lies”, including the notion that “tax cuts lead to more investment and more jobs”.
The CDU’s retreat from the tough reform agenda it adopted at its landmark Leipzig party congress of December 2003 coincides with a drive by the Social Democratic party, its long-time rival and partner in the coalition, towards the political centre as the two groupings compete for middle-class voters.
Confidential opinion surveys recently commissioned by the CDU and its CSU sister party in Bavaria show these voters are becoming less inclined to accept sacrifices. “The CDU does not want an end to the reforms, but it wants an end to the blood-and-tears rhetoric,” said one person close to Ms Merkel.
Under Mr Rüttgers’ proposal, employees who lose their jobs after working for 40 years would be entitled to 24 months of salary-indexed benefits instead of 12 today. The measure would cost €700m a year, to be financed by cutting benefits to younger jobseekers.
After Mr Schröder’s 2003 reforms, jobseekers are entitled to one year of such relatively generous benefits after losing their jobs. They then receive a flat-rate, €345-a-month payment.
This and other unpopular reforms were blamed for a string of electoral defeats for Mr Schröder’s SPD, culminating in his ousting from the chancellery last year.
Ms Bartsch questioned the fairness of Mr Rüttgers’ proposal, saying “our calculations show that people who are now nearing retirement will actually get more out of the tax and social security contributions they have paid in their lifetime than those who start working now”.
Copyright The Financial Times Limited 2006
Thursday, November 02, 2006
German jobless rate falls below 10% (FT)
A steep drop in unemployment last month brought Germany’s jobless rate below the psychologically significant 10 per cent mark for the first time in four years, drawing triumphant reactions from the otherwise conflict-ridden government of Angela Merkel, chancellor.
The surprisingly good figures released on Thursday by the Federal Labour Agency came as Ms Merkel was preparing to host a “public-finance summit” on Friday with leaders of her grand coalition to discuss how to allocate the tax windfall generated by the robust economic rebound.
The number of jobseekers stood at 4.09m last month, or 9.8 per cent, the lowest rate since November 2002, putting the monthly fall at a hefty 67,000 – three times higher than economists expected. “Not even chronic nitpickers and killjoys can ignore the facts now: the breakthrough on the job market is here. Let us rejoice,” said Franz Müntefering, labour minister.
The figures provided a positive backdrop to Friday’s meeting, at which Ms Merkel hopes to bring order to the cacophony of demands triggered by higher-than-expected tax revenues. A circle of economic forecasters that regularly reviews the public finances is on Friday expected to forecast this year’s revenues at about €485bn ($605bn, £327bn), €20bn above its May estimate.
But the positive data also highlighted the contrast between the robust health displayed by Germany’s economy and the image offered by its divided government, which has struggled to pursue reforms.
Ms Merkel has hinted she favours using the extra tax revenue to cut social security contributions, the payroll levies that make German workers among the most expensive in the world. But her Social Democrat coalition partners would rather cut the federal deficit.
In a surprising contribution to the debate, Ms Merkel’s Christian Democratic Union (CDU) has said it will adopt a motion at its congress this month calling for higher jobless benefits, turning the tables on the left-of-centre SPD, which has reacted with accusations of populism.
In addition to booming tax revenues, Germany is experiencing a robust inflow of money into its social security system. After Thursday’s good unemployment figures, the Labour Agency is on course to generate a €11bn profit this year.
Employment statistics, which lag one month behind the unemployment figures, showed a 24,000 increase in September, bringing the number of jobs created this year to 281,000.
Given the scale of the job recovery, economists are puzzling over why private consumption, for years a particularly weak spot of the German economy, is stubbornly refusing to rebound.
Deutsche Bank argued that the cause lay in tough anti-dismissal laws, which led to 70 per cent of all jobs created this year going to people hired through temporary work agencies who typically earn – and spend – less.
■ The rival parties in Germany’s coalition on Thursday said they had reached an agreement on a modified version of their draft corporate tax reform.
The deal provides for an average nominal tax rate of just under 30 per cent, against 38.6 per cent today, and includes a new, 25 per cent withholding tax on capital gains.
Although the reform would lift the tax burden on German companies by €5bn in the first year, Peer Steinbrück, finance minister, said the goal was to maximise tax revenue in the longer term by making Germany more attractive for investors and discouraging tax avoidance.
The most controversial part of the original plan – a tax on interest payments intended to extend the tax base by closing a loophole in the current legislation – was modified. Under the new model, the amount of interest payments that can be deducted from taxable profits will be determined by the size of these profits. There are still a number of hurdles to be passed before the reform comes into force in 2008.
Copyright The Financial Times Limited 2006
The surprisingly good figures released on Thursday by the Federal Labour Agency came as Ms Merkel was preparing to host a “public-finance summit” on Friday with leaders of her grand coalition to discuss how to allocate the tax windfall generated by the robust economic rebound.
The number of jobseekers stood at 4.09m last month, or 9.8 per cent, the lowest rate since November 2002, putting the monthly fall at a hefty 67,000 – three times higher than economists expected. “Not even chronic nitpickers and killjoys can ignore the facts now: the breakthrough on the job market is here. Let us rejoice,” said Franz Müntefering, labour minister.
The figures provided a positive backdrop to Friday’s meeting, at which Ms Merkel hopes to bring order to the cacophony of demands triggered by higher-than-expected tax revenues. A circle of economic forecasters that regularly reviews the public finances is on Friday expected to forecast this year’s revenues at about €485bn ($605bn, £327bn), €20bn above its May estimate.
But the positive data also highlighted the contrast between the robust health displayed by Germany’s economy and the image offered by its divided government, which has struggled to pursue reforms.
Ms Merkel has hinted she favours using the extra tax revenue to cut social security contributions, the payroll levies that make German workers among the most expensive in the world. But her Social Democrat coalition partners would rather cut the federal deficit.
In a surprising contribution to the debate, Ms Merkel’s Christian Democratic Union (CDU) has said it will adopt a motion at its congress this month calling for higher jobless benefits, turning the tables on the left-of-centre SPD, which has reacted with accusations of populism.
In addition to booming tax revenues, Germany is experiencing a robust inflow of money into its social security system. After Thursday’s good unemployment figures, the Labour Agency is on course to generate a €11bn profit this year.
Employment statistics, which lag one month behind the unemployment figures, showed a 24,000 increase in September, bringing the number of jobs created this year to 281,000.
Given the scale of the job recovery, economists are puzzling over why private consumption, for years a particularly weak spot of the German economy, is stubbornly refusing to rebound.
Deutsche Bank argued that the cause lay in tough anti-dismissal laws, which led to 70 per cent of all jobs created this year going to people hired through temporary work agencies who typically earn – and spend – less.
■ The rival parties in Germany’s coalition on Thursday said they had reached an agreement on a modified version of their draft corporate tax reform.
The deal provides for an average nominal tax rate of just under 30 per cent, against 38.6 per cent today, and includes a new, 25 per cent withholding tax on capital gains.
Although the reform would lift the tax burden on German companies by €5bn in the first year, Peer Steinbrück, finance minister, said the goal was to maximise tax revenue in the longer term by making Germany more attractive for investors and discouraging tax avoidance.
The most controversial part of the original plan – a tax on interest payments intended to extend the tax base by closing a loophole in the current legislation – was modified. Under the new model, the amount of interest payments that can be deducted from taxable profits will be determined by the size of these profits. There are still a number of hurdles to be passed before the reform comes into force in 2008.
Copyright The Financial Times Limited 2006
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