European Monetary Union needs an external stability pact

In a new joint contribution with Daniela Schwarzer for Project Syndicate, we argue that the European Monetary Union needs a new stability pact which limits not government budgets, but imbalances in the current accounts of the member states. In such a pact, both deficit and surplus countries would be required to use their fiscal and […]

The Economic Consequences of the Grand Coalition in Germany

Last week, the Grand Coalition made sure that their legacy in Germany’s economic policy stance will be far beyond the next election on September 27, 2008. After the Bundestag had already voted to amend the constitution and to include a sweeping ban on public borrowing a couple weeks ago, the Bundesrat (the part of parliament […]

Mr Steinbrück on his path into history books

Before the financial crisis struck, the German finance minister Peer Steinbrück had a very ambitious goal. He wanted to enter history books as the finance minister who managed to oversee the first federal budget in Germany without new borrowings in a generation. This dream is now shattered. As the Financial Times Deutschland pointedly remarked a […]

German economists have to take some blame for Merkel’s slow reaction

These days, the world is stunned by the German reaction to the global financial crisis: While around the world, policy makers rush to pass stimulus packages worth hundreds of billions of dollars and several percentage points of their countries’ respective GDP, the German government is sitting on its hands. While it has passed some measures which supposedly will stimulate demand somewhat, the volumes involved are miniscule. Most observers agree that the measures passed by the German government add up to significantly less than €10bn, some estimates are as low as 0.2 percent of German GDP – an impact you would usually even have a hard time to measure. What is worse, the government does not even seriously seem to consider quick action. Ms Merkel has just recently announced that she wants to take a look at the effects from the measures taken so far only in January before deciding on additional steps. Not only the international press (i.e. the Economist), but also national media is now heavily criticizing the government’s hesitant approach.

Germany in recession: Official forecasts are still way too optimistic

After yesterday’s release of German GDP data for the third quarter, it is now offical: Germany is in recession. After a contraction of (revised) 0.4 percent in the second quarter, the summer quarter saw another contraction of 0.5 percent in quarter-on-quarter terms. Given this outcome, the official forecasts for the German economy for 2009 now […]

ECB’s U-turn cannot repair the political damage done

Only three months after its last rate hike, the ECB has yesterday prepared verbally for a sharp turnaround.  In contrast to former press conferences, President Jean-Claude Trichet stated that it is now clear that “economic activity in the euro area is weakening, with contracting domestic demand and tighter financing conditions.” According to him, “upside risks […]

Recession in EMU: Not if, but how long is the question

This week, there were a number of new indicators that the euro area actually might already be in recession: For July, Eurostat reported another drop in industrial production and revised prior months’ data downwards, leaving the July figure now 1.1 percent below the figure for Q2. Moreover, the unemployment rate has already increased by 0.2 […]

European business confidence in free fall: Thank you, Mr. Trichet?

The global downturn has now hit Europe with its full force. Today, not only PMIs fell across the euro-zone. Also the German ifo-index took a bad hit, experiencing the largest one-month-drop since the recession of 2001. Both the expectations as well as the current conditions index dropped sharply. The expectations component is now not far […]

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