Michael Steen

Small change

Search the pockets, wallets, purses, car cigarette ashtrays and homes of anyone in (almost) any eurozone country and you are likely to find significant heaps of small, brown iron-and-copper 1 and 2 euro cent coins.

They cost more to make than they are worth, there’s precious little you can buy with them (though the German post office does sell a €0.03 stamp) and they tend to accumulate in drawers and on flat surfaces at an alarming rate. So, one might reasonably ask, why not just get rid of them? Read more

Welcome to a live blog of Mario Draghi’s press conference from ECB HQ in Frankfurt. With rates held and Mr Draghi already having worried investors with his remarks on Wednesday about a slowing German economy, attention will be on what more the bank’s president has to say about the main driver of Eurozone growth. Brought to you by Ben Fenton and Ben Hall.


14.47: That’s it for this live blog, but….

…the last word goes to the FT’s Frankfurt bureau chief Michael Steen (well it is his city and his newspaper). His view of the most interesting line from the Draghi press conference:

“Pressed on ways ECB might ease Greek funding problems, Draghi said the bank already agreed to send back any profits it made from Greek bond holdings to the central bank in Athens which could then be transferred to government. The ECB was “by and large done” helping Greece within its mandate he said.”

14.45: Here is an instant reaction from Howard Archer, chief UK & European economist at IHS Global Insight:

ECB President Mario Draghi appeared to ease open the door to a cut in interest rates over the coming months and potentially as soon as December. Potentially significantly when asked whether the ECB had discussed an interest rate cut at their November meeting, Mr. Draghi commented that “we always discuss all instruments.” This contrasted to his comments after both the September and the ECB meetings, when Mr. Draghi said that the ECB had not discussed cutting interest rates. Mr. Draghi also commented that the ECB stands ready to act on standard monetary policy as well as on non-standard policy. Interestingly, though Mr. Draghi indicated that the ECB had not discussed negative deposit rates (they were cut to zero in August).

Furthermore, Mr. Draghi acknowledged that the Eurozone growth situation and outlook had weakened recently, and hinted that the ECB’s GDP growth staff projections would be revised down in their December forecasts. The ECB’s statement observed that “most recent survey evidence for the economy as a whole, extending into the fourth quarter, does not signal improvements towards the end of the year.” Furthermore, the ECB considered that “growth momentum is expected to remain weak” in 2013, largely due to the need of balance sheet adjustments in both the financial and non-financial sectors, an uneven global recovery and high uncertainty. Mr. Draghi has also expressed concern recently over very high and rising Eurozone unemployment. Reinforcing this downbeat assessment of Eurozone growth prospects, the ECB statement observed that “the risks surrounding the economic outlook for the euro area remain on the downside.”

Meanwhile, the ECB’s view on inflation does not appear to preclude an interest rate cut in the near term. While the ECB expects Eurozone consumer price inflation to remain above 2.0% and at elevated levels for the remainder of 2012, the bank sees inflation “declining to below 2.0% again in the course of next year”. The ECB regards long-term inflation expectations as “well-anchored” and believes that underlying price pressures should remain moderate, with the result that current levels of inflation should be “transitory”.

 Read more

Claire Jones

Seldom are statements of the obvious as significant as the Bundesbank’s comments yesterday that Germany might well have to tolerate higher inflation than the rest of the eurozone in the coming years.

Jens Weidmann often cites the EC Treaty’s prohibition of monetary financing as an argument against stepping up the European Central Bank’s purchases of government debt.  It would be hypocritical for the Bundesbank president to argue against what is also implicit in the legislation that governs the ECB: that the governing council sets monetary policy for the eurozone as a whole, not individual member states.

Above-target inflation is the natural result of Germany’s position as the bloc’s strongest economy at a time when the divergences between member states’ fortunes are becoming more and more pronounced.

Still, from a central bank more aware than most of the social and economic carnage that accompanies the debasement of currencies, the Bundesbank’s acceptance that higher inflation is a price that it must pay as part of its commitment to monetary union is to be welcomed. Read more

Ralph Atkins

Were Germany’s second quarter growth figures “too bad to be true”? GDP rose by a mere 0.1 per cent compared with the previous quarter, the country’s statistical office has just confirmed. When the first estimates were released in August, the figures had a large shock factor and contributed to the escalating eurozone gloom.

But details suggest the country’s reaction to the Japanese earthquake and nuclear crisis in March explained much of the slowdown. Read more

Ralph Atkins

Maybe the eurozone debt crisis has had an unexpected, beneficial side-effect – getting the Germans to go shopping? German consumers’ propensity to spend saw a surprise rise this month, according to GfK, the Nuremberg-based research organisation. At 36.2 points, its “willingness to buy” indicator is at the highest since February and way above its long-term average.

The escalating debt crisis could provide an explanation, GfK argued. “Many Germans fear for the stability of their currency and are therefore more likely to spend their money on high-value purchases than to save for a rainy day,” it noted. If so, this would be good news for the rest of Europe, helping boost domestic demand at a time when economic growth is stalling. Read more

Ralph Atkins

Shock news in the Bundesbank’s latest monthly bulletin: German house prices have gone up. The more-or-less flat profile of residential property prices over the past decade has been one of the defining features of Europe’s largest economy over the past year. It meant the country escaped a house price bubble, the downside of which is now being seen in the US, UK and, within the eurozone, in Spain and Portugal. (Instead German investors piled into US subprime mortgages – but that’s another story.) Read more

Ralph Atkins

Waiting for a German consumer boom is like… contributions welcome for the most appropriate metaphor. Whatever the comparison, it is not happening yet. Disappointingly for those hoping for a re-balancing, details just released of last week’s fourth quarter gross domestic product data show German growth continued to be driven mainly by exports.

The balance between exports and imports contributed 0.7 percentage points to growth in the fourth quarter. This was offset by a sharp, weather-related fall in construction and a run-down in stocks.

Despite steadily falling unemployment, low interest rates and soaring economic confidence in Europe’s largest economy, consumer spending rose by a measly 0.2 per cent compared with the previous three months, down from 0.5 per cent in the third quarter.  Read more

Ralph Atkins

German consumer optimism has brightened further. The GfK research organisation in Nuremberg estimates its “consumer climate” index will rise again in February, reaching a level last seen in the second half of 2007 – before the global financial crisis took its toll. Germans’ “propensity to buy” this month was the highest since December 2006, it reported.

But “propensity to buy” does not mean actually buying. The most recent German retail sales figures have been disappointing. November saw a 2.4 per cent fall compared with October. While economists generally expect 2011 to see a revival in consumers spending, on the back of steep falls in unemployment, rising wages and a general improvement in German confidence, few expect a dramatic surge. Read more

Ralph Atkins

Berlin’s approach – and that of the European Central Bank – to handling the eurozone crisis, has come under strong attack from Peter Bofinger, economics professor at Würzburg university and an independent adviser to the German government. Without a profound change of strategy there was a “major risk of an unraveling of the euro area,” he has said.

A “dangerous” adjustment process is being forced on eurozone countries, he told a Financial Times/Credit Suisse conference in Frankfurt. The weakest spot is Greece, which faces rising unemployment and debt levels. As a result, political opposition to euro membership would grow, according to Prof Bofinger. “Sooner or later we will have a discussion in Greece: ‘why not leave the euro?’” A new currency could then be devalued and much of the government’s debt cancelled out. Once Greece had left, others would follow. Read more

Ralph Atkins

If Dublin successfully avoids using the European Union’s rescue fund to resolve its banking and fiscal problems, it will probably win friends in Berlin. Germany’s exact view on what Ireland should do is murky, but officials are adamant that Berlin has not pressed for outside intervention.

That makes sense. For Angela Merkel, chancellor, and Wolfgang Schäuble, finance minister, an EU bail-out for Ireland would undoubtedly mean more unwelcome headlines in Bild of the sort the mass-market newspaper ran earlier this year over profligate Greeks and how German taxpayers were paying for the excesses of other eurozone countries.

But the view in Frankfurt is different. Read more

Ralph Atkins

German industrial production fell 0.8 per cent in September, according to the Berlin economics ministry, which was a bigger drop than analysts expected. After Friday’s disappointing orders data, the latest news seems to confirm that Germany’s economy has shifted down a gear.

Still, don’t write off yet the recovery in Europe’s largest economy. Export figures for September – released a few hours earlier by the federal statistics office in Wiesbaden - went in the opposite direction. Exports were 3.0 per cent higher than August – and a whopping 22.5 per cent higher than September last year. External demand, it appears, is continuing to power German growth.

Moreover, third quarter gross domestic product data on Friday are expected to show Europe’s economy was growing at a fair clip. Even forecasts at the gloomier end of the range are for a rise of about 0.4 per cent Read more

Ralph Atkins

Ewald Nowotny, Austria’s central bank governor, appears to have gone slightly off-message in an interview with WirtschaftsWoche, the German business magazine. The European Central Bank was seeking to correct “inefficiencies” and “imbalances” in bond markets with the purchase programme it launched at the height of the eurozone crisis in May. “As long as there are these inefficiencies, we will correct them,” he said.

That gave the impression the ECB was somehow trying to control the market. The official line is that the bond purchases are meant, simply, to restore the monetary policy “transmission mechanism”.

Still, I am not sure Mr Nowotny was really suggesting the programme had been scaled-up to bring down, say, Irish bond spreads. Indeed, he emphasised that the ECB had spent only about €60bn under the programme since May, which was “not a lot”. Read more

Ralph Atkins

Greece’s government faces angry protests over budget cuts; Germany’s faces them when it spends a lot of money. According to Bloomberg, Angela Merkel, chancellor, has just renewed her support for the controversial “Stuttgart 21” rail project, which at a cost of about €4bn and using lots of drilling machinery, will change the southern Germany city’s main railway station from a terminus into a through station. The protestors’ objections are multifaceted but one of them is that it is a waste of public money.

Ms Merkel argued in Berlin that the project was a test of German reliability. If the protesters succeeded in halting Stuttgart 21 then “my Greek colleague” would argue he could not carry out planned deficit cuts because of the protests in his country, the chancellor said. Read more

First, Germany leads the euro area to a jump in GDP in Q2. Then, just a month later, a sharp fall in Germany’s PMI leads a drop in the index for the eurozone as a whole. The Purchasing Managers’ Index is not, of course, GDP. It is a survey of 4,500-odd buyers in the eurozone on a number of measures. But historically the two are closely linked. So what’s going on?

Ralph offers some insights on First, we may be seeing an expected cooling from the rapid expansion seen earlier in the year. Second, he writes:

Earlier this week, the Bundesbank warned that the pace of German economic growth had weakened “markedly”. But it ascribed the slowdown to weaker global prospects and said the recovery remained “intact”. Although German policymakers worry about the county’s exposure to a fall in demand for its export goods, evidence is growing that the recovery is broadening with increases in real wages and falling unemployment gradually feeding through into stronger consumer spending.

 Read more

Ralph Atkins

Since the launch of the euro in 1999, economists have debated whether a “one-size-fits-all” monetary policy can work for so many economies; Estonia’s entry from January will take eurozone membership to 17 countries. The answer given by Jean-Claude Trichet, European Central Bank, has always been: mais bien sûr! Eurozone growth and inflation divergences are no greater than between US state, he argues. But life is not as simple as that in the eurozone.

Barclays Capital has just published an extensive review of divergences in growth rates, inflation and labour markets (looking also at the persistence of divergences). It finds something to support both sides of the argument. Eurozone growth rates, for instance, have converged – although the process may have gone into reverse as a result of the credit and construction booms and busts in Spain and Ireland. Divergences in eurozone labour markets, however, are greater in the US.

What makes the study interesting is that Barclays Capital then goes on to calculate what would be the appropriate interest rates for the 11 largest eurozone countries – using the so-called “Taylor rule” by which interest rates are set according to the inflation rate and “output gap” (roughly, the amount of slack in the economy). The report finds a much greater variation than would be the case for the 11 biggest US states. The reasons Read more

Ralph Atkins

Germany’s exports get all the attention, but are we missing something more interesting about the recovery in Europe’s biggest economy? The country’s statistical office has just release figures for real incomes in the second quarter of this year. They show a 2.3 per cent rise compared with the same period a year before.

In itself that is not remarkable. The second quarter of 2009 saw a steep fall in incomes as German companies put employees on short time working schemes. So a catching up a year later is no big surprise.

What is striking is that German real wages were actually higher in Q2 than before the collapse of Lehman Brothers in September 2008 – even though the economy, in terms of levels of activity – was still way below pre-crisis levels. Read more

Ralph Atkins

Another book is published on the economic crisis. This time it is Peer Steinbrück, the former German finance minister, who is promoting his memoirs, entitled “Unterm Strich” (“The bottom line”). Berlin had its fair share of nerve-wracking moments, especially after the collapse of Lehman Brothers in September 2008. Mr Steinbrück and Angela Merkel, chancellor, were forced into a joint statement guaranteeing bank savings accounts – even though they were in different parties – and had to deal with the near collapse of Hypo Real Estate.

The biggest revelations? Read more

Ralph Atkins

What did German consumers do at the height of the crisis over eurozone public finances earlier this year? A good many went shopping, according to the country’s statistical office. A detailed breakdown of gross domestic product data for the second quarter shows consumer spending increased by 0.6 per cent compared with the previous three months. That followed three consecutive quarters of contraction.

Thus, private consumption became a positive factor that contributed towards an overall 2.2 per cent increase in second quarter GDP. Although it was not as important as exports or investment spending, that is a big deal for Germany, where consumer spending is notoriously sluggish, even in boom years. Read more

Ralph Atkins

With Europe’s performance hanging largely on the fate of Germany, it is hardly surprising that any fresh news from the continent’s largest economy. But some indicators are more useful than others.

The ZEW “economic sentiment” indicator published by the Mannheim-based ZEW institute has the advantage of early publication: August’s was released on Tuesday. But since the global financial crisis erupted in mid-2007, it has been unclear exactly how it should be interpreted.

During the early 2009, for instance, when German GDP was collapsing, the ZEW was rising steadily. But for much of the second half of last year – when a recovery was underway – it was broadly flat and then falling.

Now, I have realised what we have all be doing wrong. We have been looking at the chart upside down. Read more

Ralph Atkins

When Wolfgang Schäuble, Germany’s finance minister, next meets his European counterparts, will he be heaped with praise – or brickbats? Germany’s economy is on a roll. It grew by 2.2 per cent in the three months to June, its best quarterly performance since reunification in 1990. But that has not necessarily gone down well with colleagues in other European capitals.

Unnoticed beyond his tiny country’s borders, Jean-Claude Juncker, Luxembourg’s prime minister, earlier this month launched an extraordinary attack on German economic policy, according to the Luxemburger Wort. Germany’s success was based on “wage and social dumping,” Mr Juncker is reported as having said. “The way Germany went about improving its competitiveness, I would not like to see in our country.” Since the launch of the euro in 1999, German workers had seen a meagre 12 per cent rise in wages, whereas his countrymen saw a 41 per cent rise, he went on. Read more