Politics discuss what to do with Germany’s federal budget surplus of a bit over €6bn. Wolfgang Schäuble, the finance minister, wants to repay some of Germany’s outstanding debt, which is generally a good idea. First, Germany violates a Maastricht criterion by having debt of more than 60 per cent of its GDP and as we have seen in the European debt crisis, high public debt can at times be very dangerous.
Now, usually me as a „fiscal hawk“ would agree with Mr Schäuble. But given Germany’s robust growth (1.9 per cent in the last quarter), the general improvement of the federal budget and the fact that we fall behind schedule in investment (see slide 5 of the above presentation by the finance ministry), I would rather suggest to keep the €6bn in the coffers and try to focus more investment (e.g. broadband, infrastructure and education) to bring the money where it is actually needed.
After some two weeks of falling stocks, talk about a merger with Commerzbank, musings about bailouts, bashing of its investment banking arm and reassuring statements by all sort of politicians (and competitors!), Deutsche Bank yesterday made a somewhat impressive rebound at the stock markets. Preceding was a rumour, that it may face fines only worth €5.4b instead of the previously floated €14b.
Deutsche Bank and the curious case of surprisingly low fines weiterlesen
Wait, what!? Wasn’t it the self-proclaimed goal of the ECB to save banks and thus sever the doom-loop connection between sovereigns and lenders? Yes. But it’s gone wrong. Here is why and what to do.
ECB risks another round of bank bailouts weiterlesen
On Friday morning I was shocked, probably just like everybody else. In the course of the day, that shock became anger. As such, I refrained from writing about Britain’s imminent quitting the European Union, fearing that it would only be a rant. Over the weekend, I have spoken with people about it, heard different opinions, read analyses, laughed about jokes and sorted my thoughts. This post might still be somewhat rant-ish, but very much less than if I had written it on Friday or Saturday (luckily I was busy otherwise). I will not deal with Brexit as such, there are already enough analyses about this disaster, but I will focus more on related thoughts about society, democracy and politics.
Some thoughts around Brexit weiterlesen
Even though the European public is by now used to ludicrously large sums the amount of the ECB’s latest interventions should raise concerns. The QE programme for sovereign bonds saps up bonds worth €80b every month, a quarter of it German. Now the ECB has put their eye on another way to shower the continent with freshly printed money: corporate bonds. As if sovereign debt QE wasn’t problematic (and ineffective for that matter) enough, as the experience of last year showed. ECB’s bond purchasing programmes are reckless in several ways weiterlesen
There was a little Twitter exchange on the nature of the ECB’s QE programme between Paul de Grauwe and Marcel Fratzscher. Paul sees QE as a sort of debt relief and asks why the ECB grants such relief to Germany, France and Italy but not to debt-burdened Greece. If you think of QE as a sort of debt relief, Paul’s question is legitimate, after all Greece would benefit most from a debt relief. But that is not what QE is or should be. QE is no debt relief weiterlesen
A while ago on a German train station, I saw a conductor telling a group of people that smoking is prohibited in this station. He was laughed at and ignored. Later on a passenger next to me on the train told the conductor, how glad he was that he stood up to the smoking people and reminded them of the rules. The conductor replied that it is sadly not in his power to enforce the smoking ban in German stations – and not his job for that matter. This would be the job of DB Security, a subsidiary of Deutsche Bahn, who (together with the German Federal Police) is responsible for the security of German train stations and have the means to enforce the rules. The passenger complained that all the security personnel making their rounds do rarely remind people of the smoking ban and even more rarely enforce it. An observation I can confirm. The conductor shrugged „A lot is changing“ to which the passenger replied „Unfortunately“.
We could now dismiss this little story as an unimportant chat of people unhappy about change, but I think there is more to it. It is not a story about change but about rules and how unenforced rules makes people unhappy.
Enforcing Rules Is Important weiterlesen
Currently in Germany’s Top 40 Radio Charts is a song by Max Giesinger called „80 Millionen“, where the singer muses about the incredibly small chance of meeting his lover, a chance of one in eighty million, the rough-and-ready number of the German population. Though 81.8 million would be the more accurate number, for reasons of song-writing eighty million is fine. The singer also admits that he „was never good at probabilities“ but he remembered that the chance of meeting her (or him for that matter) approaches zero. Now the probability of meeting, falling in love and actually being together with one particular person is indeed close to zero – in the literal frequentist view it is one over eighty million, which is zero for all practical purposes, even for matters of the heart in which the brain has little say. The thing is, a purely frequentist approach is plain wrong. Luckily for Mr Giesinger, the chances are much better than he thinks. One in arguably a few thousand weiterlesen
I am currently working on an estimation of a monetary union model I set up for my PhD thesis. For this, I need quarterly data of the output gap of Germany and France, which is surprisingly hard to come by. So I estimated it myself using real GDP data from Eurostat (unadjusted, chain-linked). For a very first glance, I de-seasonalised the data via moving-averages. After that, I employed the modified Hodrick-Prescott filter (mHP) as suggested by Bruchez (2003). Yes I know, the HP and mHP filters have their drawbacks and weaknesses, but they are nevertheless useful for a first look on the data.
Germany’s and France‘ potential GDP since EMU weiterlesen