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ECB bank supervision cannot tackle debt restructuring single-handedly

2016, október 13 - 16:41

In mid-September the ECB’s supervision arm issued draft guidelines on banks’ management of NPL portfolios.  In principle, by next year the most significant Eurozone banks may have to:

  • Comply with targets for NPL reduction in individual asset classes, which will be set for different time horizons;
  • Establish strategies and operational plans for NPL resolution, through better staffing of workout units and their integration in management structures, and IT systems that facilitate loan quality monitoring and portfolio sales;
  • Account annually to the ECB supervisors on progress in NPL reduction.

NPL resolution will now figure prominently in the ECB’s regular discussions with the 129 significant banks that it directly supervises. Ultimately, similar standards may be implemented for smaller banks where direct supervision lies with national authorities. In the near future this guidance will only inform discussions with systemic banks that have a persistent and excessive NPL stock. But binding ECB supervision might follow for those banks that fail to comply.

This is a welcome further step in the long-running attempt to cleanse balance sheets from the legacy of the financial crisis. To date, euro-area banks have made no more than a small dent in the NPLs which stood at over € 1 trillion in 2015, according to latest IMF assessment.

As the ECB has again pointed out in their latest Financial Stability Review, high levels of NPLs remain a key obstacle to a recovery in lending. This traps capital in loss-making enterprises and as credit supply is stifled, investment suffers across all sectors, aggravating debt distress further.

The NPL overhang is particularly serious in the euro area countries that have undergone sharp financial contractions (see the table below). In Spain and Ireland NPLs are now falling, but this process remains in the early stages in Italy, Portugal and Slovenia, and Greece.

Given cross-border linkages between banking sectors, NPLs will complicate lending relationships throughout the single capital market, and also undermine the effectiveness of the ECB’s more aggressive monetary easing (a recent paper by V. Acharya and co-authors underlines the scale of credit misallocation). So a consistent effort in cleansing distressed loans from bank balance sheets, and preventing their re-emergence, will be essential for confidence in the banking union.

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New standards on loan quality were adopted by the European Banking Authority (EBA) in 2013. In the 2014 comprehensive review these enabled a first glimpse of true asset quality based on a common standard. Forbearance – the modification of loan terms in the expectation of the recovery of the borrower’s capacity to repay – was clearly defined and inadequate restructuring, in the spirit of ‘extend and pretend’, has become more difficult since then.

The ECB guidelines seem a significant extension of the scope of supervision, beyond ensuring compliance with prudential norms and addressing the deeper causes of weak capital coverage that lie in business models and organisational structures. Some may see this as a regime change for banks that are already confronted with a significant compliance burden. Nevertheless, the ECB’s mandate clearly allows examination of banks’ internal organisational structures, and this mandate has already been used to constrain banks’ risk management practices.

Banks that work throgh an excessive backlog of distressed loans will need to acquire additional skills and reform internal capacity and management structures. ECB supervision has now established transparent benchmarks, and will in future encourage convergence to best practices. The workout of distressed loans is rarely a glamourous business line within a financial organisation. Senior management will need to provide more resources for this effort and offer appropriate incentives to their workout teams. Ultimately, this should reassure investors and depositors.

IMF analysis suggests that only very few European countries successfully reduced NPLs,  either where they benefitted from a pickup in external demand or where there was a concerted effort to clean up bank balance sheets in parallel with corporate debt restructuring. The banks under ECB supervision will account for the best part of banking system assets. In other words, setting NPL targets for individual banks will in effect amount to system-wide deleveraging. To be successful, ECB supervision therefore need to be flanked by a number of supporting policies:

  • In an initial step the ECB will need to determine how much restructuring and sales of distressed portfolios the system as a whole can, or should, manage. Under-provisioning, capital coverage and slow replenishment from earnings will of course constrain this process. Responsibility for systemic or macro-prudential supervision is shared between the ECB and national central banks, which should spell out this path clearly.
  • This judgement on aggregate deleveraging capacity should then guide NPL reduction targets for individual large banks. Such targets would need to be carefully defined and communicated. There is a risk they could give rise to poor restructuring practices, to moral hazard among borrowers, and could be mis-perceived by the public and investors. The only comparable experience comes from Ireland in 2013. In that instance the national central bank was closely involved in setting targets, which related to two specific asset classes (residential mortgages and SME loans). These targets were made public, and where there was a clear definition of what amounted to sustainable restructuring solutions.
  • There should be a clearer encouragement of market-based restructuring solutions. At present, the ECB guidance seems indifferent about alternative options. In reality, banks’ internal workout units are rarely sufficiently empowered to oversee a costly restructuring of large enterprises. Restructuring is a cyclical activity, and skills are rarely in sufficient supply. By contrast, investors in distressed assets or specialist restructuring firms are more likely to recover value in viable enterprises, though will also extract a price given the risks in the legal environment and in loan servicing provisions.
  • Where banks remain in the lead, coordination with other creditors will need to define restructuring solutions that maximize value recovery in large enterprises. The enforcement of collective restructuring principles is a task for a national central bank or government.
  • An assessment of framework for restructuring and market-based solutions will need to inform the engagement with the banks. The ECB last month also published an assessment of national restructuring frameworks in eight countries that spells out many shortcomings. This analysis underlines how governments need to raise standards in insolvency frameworks, build capacity and provide conditions for the entry by investors within appropriate regulation.

Tackling legacy assets and pre-empting the reflow or re-emergence of new debt distress should be a core element of bank supervision and the ECB has rightly broadened the scope of its policies. But this effort needs to be framed within a realistic deleveraging path for each banking system. For now, this work is aimed at key bank groups in the euro-area but should of course be coordinated with the supervisors of other EU countries where these institutions control significant subsidiaries, all with their own NPL problems.

In the euro area’s multiple NPL crises this process will need to be supported by national central banks and governments. There have been some reforms in national insolvency regimes, such as in Italy. But legal reforms will take time, and will only be effective if adequate capacity is built up, within the courts and among restructuring professionals more broadly.

Kategóriák: Economy

Codetermination in Germany – a role model for the UK and the US?

2016, október 13 - 15:17

Codetermination or “Mitbestimmung” – the German term for worker participation in a company’s decision making – has recently attracted attention as UK Prime Minister Theresa May and US presidential candidate Hillary Clinton promised to strengthen workers’ rights and interests. The latter has called for rewriting “the rules so more companies share profits with their employees”. Mrs May has repeatedly stated her intention to reform corporate governance such that workers and consumers are represented on boards, to “reform capitalism so it works for everyone – not just the privileged few.” Many commentators have interpreted the Brexit vote also as a rejection of the current globalized economic system from which “the rich are gaining at the expense of the poor” (see e.g. here). While codetermination does not only exist in Germany, several authors (see here and here) have wondered whether it could be a role model also for the UK and the US. This blog provides a short overview of the characteristics of codetermination in Germany and evidence from academic literature.

What is codetermination?

Codetermination is deeply rooted in the tradition of German corporate governance and has existed in its current form since the Codetermination Act of 1976. It has an explicit social dimension: as the German Constitutional Court ruled, codetermination on the company level is meant to introduce equal participation of shareholders and employees in a firm’s decision making and shall complement the economic legitimacy of a firm’s management with a social one. Codetermination is therefore about a democratic decision making process at the firm level and the equality of capital and work (Page 2009). Furthermore, according to Kommission Mitbestimmung (1998), the main aims of codetermination consist in making investments in human capital profitable, and “rewarding” employees’ loyalty towards the firm with participation rights.

Codetermination could be viewed as an institution enhancing workers’ representation and participation rights in a firm’s corporate governance. There are two levels through which employees are given codetermination rights to participate in a firm’s decision making: the work council (“Betriebsrat”,establishment or “shop-floor” level) and the supervisory board (“Aufsichtsrat”,company level).

The work council is generally elected in firms with more than 5 employees and many of its members are also members of German trade unions. The council is endowed with far-reaching information and consultation rights that enable it to exert influence on working conditions, pay principles, working time etc.  Employers must negotiate with the work council if changes affecting the workforce take place, e.g. the dismissal of employees.

Codetermination at the company level, on the other hand, consists in the participation of employees or their representatives in the supervisory board. Germany was one of the first countries to introduce a two-tier system, meaning that the law requires firms to have an executive board, composed by executives and chaired by the CEO, and a supervisory board, composed by non-executives, which are shareholder and employee representatives (including union representatives). Note that workers are thus represented on the supervisory board – not the (executive) board. The number of employee representatives depends on the size and legal type of the firm: one-half of the members of the supervisory board are employee representatives for firms with staff of more than 500 for limited liability corporations (“GmbH”) and more than 2000 for stock corporations (“AG”), and one-third for stock corporations with between 500 and 2000 staff. The chairman of the supervisory board, who is elected by shareholders, has an extra vote in case of a tie.

The supervisory board is generally involved in the appointment of the management board members, monitoring of business operations overseeing the activities of the management board and, in a subcommittee, determining the compensation of its members. With the supervisory board approving major strategic decisions, ultimate corporate power resides with it (FitzRoy and Kraft 2004) and thus also with employee representatives.

Finally, it should be noted that codetermination and wage negotiations are separate as usually unions and employers’ associations bargain with each other. However, there are close personal links between unions and institutions of codetermination as work councillors and thus employee representatives on the supervisory board may be union members (FitzRoy and Kraft 2004).

Codetermination and its effects

Corporate governance is characterized by the interplay between managers and owners of a firm. While the latter wish to maximize the value of the firm in the long run, executives maximize their own utility, for which compensation, prestige, power etc. are relevant. Codetermination introduces a third interest group, employees, to the supervisory board and thus to the firm’s decision making process. The question is whether the interests of each group overlap or are in contrast with each other, and which benefits and costs employee representation entails.

Shareholder vs labour interests, efficiency, and the supervisory board

Some authors have questioned why codetermination should be made mandatory. If it was beneficial, firms would have introduced it themselves and its presence may therefore be inefficient (Jensen and Meckling 1979). There may be rent seeking on part of labor at the expense of shareholders. Indeed, studies have found that equal representation on the supervisory board (versus one-third representation) reduces the market-to-book ratio – a measure of firm performance – by 31% on average (Gorton and Schmid (2004). The authors conjecture that “labor succeeds in altering the objective function of the firm – away from maximizing shareholder wealth”, e.g. by resisting lay-offs and thus using their voting power as an insurance for employees in response to negative shocks. They also find evidence for high staffing levels and thus potential overstaffing in equal-representation firms.

On the other hand, employees might have a similar objective function as shareholders (or their representatives) aiming at the long-run survival of the firm, in which case employee representation could actually be beneficial for shareholders. One such overlap in employees’ and shareholders’ interest would be to prevent managers from pursuing overly risky projects, maximizing short-term profits, or engaging in expansion by mergers and acquisitions. The shareholders as members of the supervisory board can change the managers’ compensation structure to incentivize them to act according to their interest. Dyballa and Kraft (2016) find evidence that employee representation is beneficial in that regard.

Furthermore, there may be benefits due to an improved flow of information between board and workers. Due to their knowledge of a firm’s operations and processes, employees are good at monitoring managerial performance and bring first-hand knowledge to the board’s decision making (Edwards et al 2009, Fauver and Fuerst 2006). The latter find that codetermination can increase firm efficiency and market value. This finding is not necessarily incompatible with Gorton and Schmid (2004) as they do not stipulate that one-half representation is optimal but simply that a positive number of employee representatives is beneficial. The optimal level of labor representation might thus be below parity. They argue that their finding holds in particular for “industries that require more intense coordination, integration of activities, and information sharing such as trade, transportation, computers, pharmaceuticals, and other manufacturing”.

Information flows and work council presence

Beyond worker representation on boards, work councils as the other pillar of codetermination institutionalize cooperation between workers and employers. Workplace representation in Germany takes place mainly through work councils rather than unions (see Addison 2005 for a survey of the academic literature). These institutions aggregate information and preferences of workers and thus may help determine the social demand for public goods such as better working conditions. Work councils may also be beneficial in relation to workers’ input of effort, reducing exit behaviour (quits, absenteeism) and increasing firm-specific investments in human capital. Other benefits may be due to work councils’ information rights – by, e.g., verifying management claims and avoiding costly disputes -, consultation rights – leading to new solutions and creative discussion – and by encouraging workers to take a longer-run view of the firm by providing them more job security, a point also raised by Kommission Mitbestimmung (1998) further above. On the empirical side the findings are quite mixed, however. Most recent studies find neutral or small, positive effects on productivity, innovation, and investment. One study argues that the functioning of work councils also depends on its age, i.e. there is a learning effect (Jirjahn et al 2011). For example, the authors find that adversarial relationships between work councils and the management are decreasing, and productivity increasing, with its age.

Codetermination and equality

Finally, as the system of codetermination is also mentioned in the context of “democratic capitalism” and is meant to be an inclusive framework, it seems natural to wonder whether this also shows up in numbers. For obvious reasons, macroeconomic effects are hard to measure seriously. Nevertheless, Vitols (2005) looks at 25 EU countries and finds that countries with stronger worker participation rights perform better in terms of labor productivity, R&D intensity, and had lower strike rates, although this group of countries performed worse in terms of GDP growth. Hörisch (2012) looks at the association between codetermination and income inequality (measured using the Gini index) in OECD countries and finds that it is negative – i.e. higher income equality in countries with codetermination.

To conclude, there is plenty of evidence that the German stakeholder system of codetermination has been a positive experience, although there are also strong doubts about whether it is efficient or optimal. There are several other particularities of the German economic system – interaction between firms and other social partners, ownership structure of German firms etc – that are important to bear in mind when thinking about whether codetermination can also work elsewhere.


Dyballa, K. and K. Kraft (2016) ‘How do Labor Representatives Affect Incentive Orientation of Executive Compensation?’. IZA Discussion Paper No. 10153.

Edwards, J. S., Eggert, W., and A.J. Weichenrieder (2009) ‘Corporate Governance and Pay for Performance: Evidence from Germany’. Economics of Governance, 10(1), 1-26.

Fauver, L. and M.E. Fuerst (2006) ‘Does Good Corporate Governance Include Employee Representation? Evidence from Germand Corporate Boards’. Journal of Financial Economics, 82.3 (2006): 673-710.

FitzRoy, F. and K. Kraft (2004) ‘Co-determination, Efficiency, and Productivity’. IZA Discussion Paper No. 1442.

Freeman, R.B., and J.L. Medoff (1984) ‘What do unions do.’ Indus. & Lab. Rel. Rev. 38 (1984): 244.Gorton, G. and F.A. Schmid (2004) ‘Capital, labor and the firm: a study of German codetermination’. Journal of the European Economic Association Vol.2, No. 5

Hörisch, F. (2012) ‘The Macro-economic Effect of Codetermination on Income Equality’. MZES WP No. 147, 2012.

Jensen, M. C., & Meckling, W. H. (1979). Rights and production functions: An application to labor-managed firms and codetermination. Journal of Business, 469-506.

Jirjahn, U., Mohrenweiser, J., and U. Backes‐Gellner (2011) ‘Works councils and learning: On the dynamic dimension of codetermination’. Kyklos, 64(3), 427-447.

Kommission Mitbestimmung (1998) ‘Mitbestimmung und neue Unternehmenskulturen – Bilanz und Perspektiven‘. Bertelsmann Stiftung, Gütersloh.

Lazear, E.P., and R. Freeman (1995).‘An economic Analysis of Works Councils’. In: Works Councils: Consultation, Representation, Cooperation. University of Chicago Press for NBER ; 1995. pp. 27-50.

Page, R. (2009) ‘Co-determination in Germany – A Beginner’s Guide’. Hans Böckler Stiftung, Arbeitspapier 33.

Vitols, S. (2005)‘Prospects for Trade Unions in the Evolving European System of Corporate Governance’.

Kategóriák: Economy

Income inequality through decades and books

2016, október 12 - 17:03
Frequency of using the word “income inequality” in Google’s text corpora in English, 1900-2008.

Source: Google Ngram Viewer. Note: No reliable data after 2008.

The amount of online content has increased enormously in the last decades, nevertheless we can observe that these has been a steep increase in inequality-related content from 1970-1980, followed by flat and/or declining trend throughout the following decade from 1980-1990.

However, starting from 1990s, the trend has quickly rebounded and continues to increase. Such a trend demonstrates that the discussions on inequality, distribution and fairness is likely to stay as an important topic, which in turn has large implications on directions of research and policy agenda.

Kategóriák: Economy

The Deutsche Bank Frenzy and what it says about European banks

2016, október 10 - 16:00

The IMF released their Global Financial Stability Report (GFSR), which finds that short-term risks to global financial stability have abated since April 2016, but that medium-term risks continue to build. Financial institutions in advanced economies face a number of cyclical and structural challenges and need to adapt to low growth and low interest rates, as well as to an evolving market and regulatory environment. Weak profitability could erode banks’ buffers over time and undermine their ability to support growth and a cyclical recovery will not resolve the problem of low profitability. The IMF stresses that more deep-rooted reforms and systemic management are needed, especially for European banks.

A recent paper by Acharya, Eisert, Eufinger and Hirsch looks at why the regained stability of the European banking sector has not fully transferred into economic growth. They show that this development can at least partially be explained by zombie lending motives of banks that still remained undercapitalized after the OMT announcement (see figure  below). While banks that benefited from the announcement increased their overall loan supply, this supply was mostly targeted towards low-quality firms with pre-existing lending relationships with these banks. As a result, there was no positive impact on real economic activity like employment or investment. Instead, these firms mainly used the newly acquired funds to build up cash reserves. Finally, they document that creditworthy firms in industries with a prevalence of zombie firms suffered significantly from the credit misallocation, which slowed down the economic recovery.

Meanwhile, the European markets were agitated last week by the news of a bigger than expected fine imposed by the US Department of Justice on Deutsche Bank, which some seemed to think could put the bank in difficult position. Martin Wolf at the Financial Times says that Deutsche Bank offers a tough lesson in risk. A first lesson from the Deutsche turmoil is that banks remain highly fragile businesses. By their nature, banks are highly leveraged entities with ultra-liquid liabilities and far more illiquid assets. The high pre-crisis returns on equity promised by banks depended on their ultra-high leverage and so on the taxpayer support in the resulting crash.

A second lesson is that the way in which regulators have gone about punishing banks for their many wrongdoings is unsatisfactory. It is reasonable to punish shareholders for the misdeeds of the banks whose shares they own, yet it must be doubted whether it makes sense to impose a penalty so large that it imperils the survival of an institution. Far more important, the idea that shareholders control banks is a myth: it is management that is responsible, and it is disheartening that shareholders have been punished, but the decision makers who ran these institutions escaped more or less unscathed.

A third lesson is that banks are still undercapitalised, relative to the scale of their balance sheets. More immediately, we lack reliable means of rectifying this. So, while governments insist bailouts are ruled out, few believe this, particularly in the case of a bank of Deutsche’s importance. Overall, Wolf says, the approach taken to punishing banks for their failings is more like firing a blunderbuss than a rifle; and it is still hard to recapitalise banks without public money. Above all, more than nine years after the start of the global financial crisis, worries over the health of the financial system remain significant, especially in Europe. This should not be surprising. But it should be disturbing.

In his piece, Martin Wolf refers to a research note by Adam Lerrick of the American Enterprise Institute, who proposes an alternative form of resolution which he names “temporary bail-in”. This is intended as a response to the idea of “precautionary recapitalisation” that is part of the Bank Resolution and Recovery Directive (BRRD) and which allows government to provide the needed capital temporarily until private sector investors can step in and replace the public funds. Lerrick argues that temporary bail-outs create perverse incentives for regulators and investors and, too easily, become permanent. He argues that if the capital shortfall is really temporary, the bank’s debt holders will be temporarily bailed in and their claims temporarily converted to equity.

Under his proposed framework, the bank would be immediately recapitalized but given time to develop a viable business plan and raise the needed capital from private sector sources. Once new capital is raised from private sources, the former debt holders will have the option of retaining their shares or re-converting them back to their original debt claims. If the funds are truly needed temporarily, the debt holders will be only temporarily bailed in. If the bank cannot raise new capital from private sources, the debt holders will be permanently bailed in. Lerrick proposes that only the excess of each investor’s debt holding above EUR 200,000 would be temporarily converted to shares – so as to protect small investors – and for banks with large numbers of retail investors, 95% of retail bondholders should be completely protected from the temporary bail-in and keep their entire original debt claim. Lerrick argues that under this arrangement, the bail-in may be temporary but the increase in Common Equity Tier 1 (CET1) capital is permanent. He is convinced that the temporary bail-in is a logical extension of the concept of Contingent Capital, it will not have a significant effect on the bank’s cost of funds, it will create stabilizing incentives and will pressure banks to raise needed capital quickly.

Frances Coppola writes on Forbes that talks of “another Lehman” is way overdone. If ever there were a case of market irrationality, this is it. Deutsche Bank needs to raise more capital, that has been evident for quite some time, but Lehman was suffering from much more than a mild shortage of regulatory capital. The Department of Justice’s proposed fine makes the need for Deutsche Bank to raise capital more urgent, while a tanking share price makes it more difficult. So news that the eventual fine could be a lot less than the $14bn that shocked the markets comes as a welcome relief. But even if the fine were imposed in full, it wouldn’t push Deutsche Bank into a Lehman-style collapse because a regulatory capital shortfall is not insolvency. So even if some combination of the DoJ’s fine and other disasters that we haven’t yet heard about did bring Deutsche’s regulatory capital below the ECB’s minimum, it would need a capital plan, not a bailout. Moreover, disasters like Lehman are fundamentally about liquidity, but Deutsche Bank has a strong cash position, and in a crisis it would be backed by the ECB. So Coppola thinks that one should expect no disorderly collapse, no dramatic bailouts and emphatically no financial crisis (which makes American schadenfreude misplaced).

Dan Davies of Frontline Analysts has a rather funny Deutsche Q&A and a longer Deutsche explainer. Davis refers to a recent story by Bloomberg, according to which some hedge funds would have started reducing their Deutsche exposure. Davies says that we should not be worried by hedge funds moving excess derivatives collateral or prime brokerages: basically this is surplus cash that hedge funds have which isn’t invested, or surplus treasury bills that they don’t need to pledge against their trades, but keep in their collateral account anyway. Big hedge funds always have more than one prime broker, and they’re always moving their surplus around. But because these balances are so volatile, they’re basically unusable by the bank as a funding source, so no real funding for Deutsche has been pulled, so far, only excess balances. What would be worrying, Davies says,is if we saw corporate, retail or payments system accounts being moved, because these balances very much are part of the funding of Deutsche Bank’s business, and they do rely quite a lot on “behaviourally stable funding”.

It’s also important to remember that it is not 2008, and Deutsche is no Lehman Brothers. The bulk of Deutsche’s short term funding is secured against securities pledged as collateral, and differently from 2008, nearly all of the short term funding these days is against genuinely risk free instruments. There’s a lot less uncertainty surrounding the valuation of Deutsche Bank’s unpledged assets, if they needed to be pledged to support further funding, then there were about Lehman. The uncertainty all relates to the liabilities side of the balance sheet: the capital might not be sufficient, and the equity might be impaired by a big charge for DoJ fines. Both of these threats come from somewhere other than the asset side of Deutsche Bank’s balance sheet. Moreover, there are significantly many more ways for a bank to get hold of short term liquidity 2016 than there were in 2008. This being said, it is a state of clear and accelerating franchise damage, which could become severe. The worry that ought to be on management and the market’s minds is not a fast and catastrophic collapse, but a gradual transition to a run-off situation in which no long-term funding can be raised and therefore no new business can be initiated. This company needs to raise equity, fast, and settle its litigation, as fast as it can.

The Macro Men agrees: this is not a Lehman moment and will not become a Lehman moment.   For one thing, there is a veritable ocean of liquidity available today through various programs (LTROs, etc.) that were not in place during 2008.  It is therefore difficult to see DB running out of money as swiftly as Lehman did.  More importantly, there has been a change in the structure of the market that makes it more difficult for a systemically-important bank to be as systemically important as Lehman was. Macro Men thinks this is attributed to a decline in the velocity of collateral, which is in turn due to the fact that collateral re-hypothecation is not nearly as prevalent as it used to be. As a result, any failure of Deutsche Bank would not result in the complete freezing up of the financial system that we observed eight years ago. But just  because DB isn’t Lehman doesn’t mean that a failure wouldn’t hurt, particularly given that other banks are looking ropy on their own accord.

Jacob Kirkegaard at the Peterson Institute for International Economics says that whatever its outcome, the recent debacle of Deutsche Bank will mean dramatic changes at the bank itself and could well stress test the new euro area single supervisory mechanism (SSM). While recent events underline that Deutsche Bank’s current business model is unsustainable, this should not be seen as another Lehman Brothers. It is not credible that Deutsche Bank, which has access to essentially unlimited liquidity from the European Central Bank, could run out of cash to repay counterparties anytime soon. At the same time, given that a collapse of Germany’s largest bank would surely lead to a serious economic disturbance, Berlin could issue guarantees for new Deutsche Bank bonds or inject equity capital into the bank, within the BRRD framework. Kirkegaard argues that Deutsche’s market route will serve as a stress test of the new SSM: if the situation deteriorates and the bank were to require public support, this would be a serious blow to the credibility of the SSM, as the bank passed the recent stress tests. That Deutsche has been allowed to operate with a balance sheet this vulnerable should serve as a broader warning sign about the need for the SSM to strengthen its supervision of the largest euro area bank balance sheets.

Jim Brundsen on Brussels Blog thinks that the woes of Deutsche Bank demonstrate that Europe’s banking crisis is still not settled, but the troubles at Germany’s biggest lender have not deterred Brussels from pushing back forcefully against stringent new banking rules. He cites Dombrovskis’ statement that he would be prepared to break with Basel, unless it backs down over its latest set of reform proposals which would lead to increase the amount of loss-absorbing capital banks are required to have. For those with long memories, this can seem quite odd: once upon a time, EU regulators’ prime concern was to force banks to have more capital. It was seen as a safeguard for stability, not an unnecessary burden. After years of sluggish recovery, things seem to have changed. While supporters of the new Basel plans, notably the US and Switzerland, argue that the measures are simply a cleaning up exercise designed to avoid any rule-dodging by banks, the EU sees the exercise as re-opening a book it would rather keep closed. Underneath the technical discussions, there is a conundrum for Europe: how to convince investors that its banks are solid while dodging international rules intended to make them so. With Deutsche in the wars, the challenge is all too real.

Kategóriák: Economy

What consequences would a post-Brexit China-UK trade deal have for the EU?

2016, október 7 - 15:43

Brexit means that the United Kingdom could be able to run its own trade policy, which opens the door for the potential negotiation of a free trade agreement between the UK and China. Alicia Garcia-Herrero and Hianwei Xu show that a UK-China FTA will be neither easy nor clearly advantageous for the UK:

  1. It will be difficult for the UK to reach an agreement with China without first establishing a new post-Brexit partnership with the EU. Negotiating tariffs with other WTO members will be a pre-condition if the UK exits the EU customs union, and this process will require time and effort.
  2. Even if the UK reaches an agreement with China, the UK cannot serve as a back door for Chinese products to enter the EU, because the EU is very likely use rules of origin to close any such loopholes.
  3. The UK and the other EU economies differ in most of their exports to China, so there would be very limited substitution between them.

It therefore seems that establishing a new trade relationship with the EU would be a more urgent task for the UK in the post-Brexit world, rather than an FTA with China. Under such circumstances, the UK might need to postpone its trade negotiations with other economies outside of EU, including China.

This goes beyond the current discussion of the illegality of the UK starting to negotiate trade deals before it leaves the EU. The issue is whether it makes economic sense for the UK to do so, and the answer is no. In fact, the more the UK reaches an independent favourable trade agreement with China after Brexit, the harder it will be for the UK to strike a good deal with EU.

In the meantime, it is also urgent for the UK to negotiate with the main WTO members on tariffs, because outside the EU, the UK might not participate in the EU schedule of concessions. The best strategy for the UK would be to negotiate with the other WTO members with the EU-based tariffs as a starting point, to avoid negotiating over terms separately and also to maintain a close relationship with the EU.

Kategóriák: Economy

The yuan’s SDR entry is more symbolism than substance

2016, október 7 - 14:26

This op-ed was originally published in Nikkei Asian Review.

First, central bank purchases of yuan to comply with the Special Drawing Rights (SDR) basket are relatively tiny, equivalent to just $29 billion. This is because even though the yuan is the third-largest currency in the SDR basket behind the U.S. dollar and the euro, with a nearly 11% weighting, the basket itself represents a very small part of foreign exchange reserves — just 0.3% of the global total.

Second, since the IMF’s announcement on Nov. 30, 2015, about adding the yuan to the SDR basket, central banks have had nearly a year to rejig their holdings to reflect the new allocations. This means the bulk of yuan purchases by central banks should have already taken place. Some data suggests that as much as 70% of central banks already had enough yuan to comply with the new SDR allocations even before the initial announcement last year.

Drawing power

The real question, then, is whether SDR entry will act as a catalyst for capital flows into China beyond the tiny required amount of yuan purchases. In fact, even during the April-June quarter, when China’s foreign exchange markets calmed considerably from the previous three months, capital outflows reached $133 billion.

The figure for the July-September quarter was probably even larger. This means 2016 may end up being pretty similar to 2015 in terms of capital outflows, reflecting expectations of protracted yuan depreciation.

While some foreign investors may still want to tap the increasingly large onshore bond market and bet money within China, it seems unlikely that many will follow this trend at least until the People’s Bank of China reverses course and starts to move up benchmark interest rates. In the event of another rate increase by the U.S. Federal Reserve in the coming months, more attractive yields in China will become even more important to draw investors.

The tensions seen in the offshore yuan market in mid-September, with overnight interest rates to borrow yuan spiking, illustrate how little the market outlook on the Chinese currency has changed. It is still in depreciation mode in the eyes of most market participants, notwithstanding intervention by the PBOC and other parties.

Against this background, it seems clear that the need to stem depreciation pressure in the offshore market has taken a toll on China’s ambitions of internationalizing the yuan.

The usual measures of international yuan usage are all heading down.

The currency accounted for just 6.7% of total deposits in Hong Kong in August, barely half as much as in 2014. Cross-border settlement in yuan represented 21% of total trade logged in August, compared with 37% at the peak in March 2015. Issuance of offshore “dim sum” bonds denominated in yuan halved from 2014 to 2015.

These measures reflect investors’ doubts about the true value of the currency and the management of its movements, as even offshore investors get less and less say in deciding the yuan’s exchange rate.

This means that despite the symbolism of becoming an official SDR currency, the reality is that more will be needed for China to attract inflows and for the yuan to become a truly international currency. The perception of a currency as a dependable, strong store of value is essential to it becoming so, and that is exactly what the yuan is missing now.

It seems that a lot of fuss and rush has been created around China’s quest for SDR status. In the short run, China does not really seem ready to put up with the unintended consequences of becoming a reserve currency. It would have been much better for China to consolidate domestic and external financial reforms before applying for the yuan to become an SDR currency. The country could then be sure of attracting the interest of investors as a fully fledged reserve currency.

Kategóriák: Economy

Goods and services tax: Landmark tax reforms in India

2016, október 7 - 12:22

The most awaited economic reforms in India, for a simplified and uniform tax rate, were passed in the Indian parliament on 3 August 2016. After 11 years of political logjam, debate, and discussion, the biggest tax reform in independent India, and also the biggest economic reform since the structural reforms in 1991, has now been passed in both houses of the Indian parliament. The general sales tax (GST), which subsumes 15 Central and state taxes on goods and services, will create one single indirect tax rate across states, and make India a truly unified market.

The GST required an amendment to the constitution, and approval by two-thirds majority in both houses of parliament. As the National Democratic Alliance had absolute majority in the Lower House (Lok Sabha), the GST bill was passed easily, in 2014. But the bill was pending in the Upper House (Rajya Sabha), due to opposition from the opposition political parties, led by the Indian National Congress, and as the National Democratic Alliance (NDA) government did not have adequate numbers in the Upper House. The irony was that the GST was the initiative of the Congress-led UPA government, which lost power in 2014, after 10 years in government. When the UPA was in power, it had tried to pass the GST, but the Bharatiya Janata Party (BJP), the party Mr. Modi belongs to, did not allow it. That is the real reason the Opposition tried as hard as they did to prevent the ruling NDA from passing the bill, although they did raise a few reasonable issues. However, after prolonged debate and negotiations, sense prevailed, and the Rajya Sabha passed the landmark GST bill unanimously, which is a rare event in Indian politics.

The existing system of Central Value Added Tax (CENVAT) and State VAT suffers from the cascading effect, and thereby leads to high tax on consumers, and different input tax credit from the Centre and states, as the two were not inter-linked, and to differential state VAT rates. The proposed integrated or Dual GST, where there will be central GST and state GST, would replace this system. As the proposed GST is a destination-based tax, the tax burden will shift from the state of origin to the state of consumption, and result in less revenue for manufacturing and developed states. Therefore, there was a proposal of 1 per cent tax on inter-state movement of goods and services, which was earlier meant to help developed states with a manufacturing base, and which has now been dropped in favour of a common market. Though the GST would compensate states for any revenue loss for the first five years, it is not good news for developed states, which have invested in infrastructure and other utilities to attract investment and industries for growth. Therefore, consumption or destination states (like Odisha, Uttar Pradesh, Bihar, and Kerala) stand to gain, while origin states (like Tamil Nadu, Gujarat, and Maharashtra) stand to lose. Overall, one single indirect tax rate all over India will create a common market and lead to a less effective tax burden on final consumers. Come April 2017, for taxation purposes, there will no longer be geographical boundaries across states.

This is by far the biggest milestone of the Modi government in terms of economic reforms. Though the Modi-led NDA has been trying for incremental reforms—though a little cautiously, after the failure to amend the Land Acquisition Bill of 2013 for easier land acquisition for infrastructure projects and industry—this is a landmark achievement, and will be a game changer in coming years. The complicated tax system in India with multiple rates at both the Centre and at states is one of the most difficult issues investors and industry face. In fact, industry and firms spend enormous amounts of time dealing with taxation issues, from tax calculation to availing input tax credit, etc., both at the Central and state level. Over the past decade, this has been one of the most demanded reforms from industry and investors to improve the business environment in India.

A uniform GST for the whole of India will facilitate seamless input tax credit, and thereby eliminate the tax cascading effect and the free flow of goods and services across states. This will help manufacturing firms achieve economies of scale across the supply chain, and they can now source rawmaterial without any additional tax burden, like central sales tax (CST), with proper input tax credit, and sell their products without any additional taxes, which will result in scale economies in production. Ultimately, transaction cost would be lower, and consumers would benefit. The existing differential tax structure across states creates distortionary incentives for different players. For production and logistics, investors prefer locations that offer the least tax rate and administration. Now, this tax incentive-influenced skewed production structure will go, which is good for ‘Make in India’. Therefore, simplifying the tax system through the GST would be a game changer, though other important reforms, like land acquisition and flexible labour laws, will remain to be made.

As more countries adopt a simplified tax structure to attract investment and business houses, the passing of the GST bill has come on time to boost the Indian economy and maintain its ranking as the most favoured destination for investment and growth. The international evidence so far, from countries like Australia and Canada, which adopted GST, like tax reforms, is that they experienced better fiscal finance with price stability in the medium term. Of course, in case the GST rate is high, there is always the fear of price hike immediately after GST implementation in the short-run.

As the main hurdle of constitutional amendment is over, the operational issues of effective implementation are likely to be taken care of soon, as the finance minister has promised to implement the GST from 1 April 2017. And many issues need sorting out.

The successful implementation of GST requires fixing the appropriate GST rate, which is the revenue neutral rate (RNR), and requires an efficient IT infrastructure and capacity building of the entire tax administration. There have been many recommendations for fixing the revenue-neutral GST rate at between 11 per cent and 12 per cent. But the report of the Committee on Revenue Neutral Rate and Structure of Rates for General Sales Tax (2015) headed by Dr. Arvind Subramanian (Chief Economic Adviser to the Government of India) recommended that the RNR should be between 15 per cent and 15.5 per cent, with a standard GST rate of 17-18 per cent.

Second, the government needs to go all out for a successful ‘Digital India’ programme, as the GST will require a state-of-the-art IT infrastructure all over India for effective implementation. Ensuring high-speed IT connectivity across states with huge geographical disparity is such a short time is going to be challenging. Moreover, the entire tax administration needs capacity building to handle the GST.

The proposal to give states the freedom to impose the state GST within a band will dilute the purpose of unified GST. Therefore, the GST Council, the proposed highest decision taking body, made up of voting representatives from the states and the Centre, should stick to one GST rate for every state. There are also issues of balance of power in favour of centre in most powerful GST council with one-third share in voting rights.

For the first time, all political parties came together and passed the GST Bill unanimously. This is not only a mature act but truly an achievement for the Modi government. The GST is called the world’s most complex tax reform, where 7.5 million businesses can register, make payments, and file returns on a GST portal. It is really a big relief for business, as even today, because of layers of taxes and exemptions, the cost of tax compliance in India is too high. In sum, it is a much needed landmark reform.

But, although the merit of the GST is evident and indisputable, the devil lies in the details, as they say, and only time will tell if it is a success.

Kategóriák: Economy

Is Europe drifting towards a hard Brexit?

2016, október 6 - 10:47

This op-ed was originally published in Nikkei Veritas “Market Eye”. It will also be published in L’Expansion and in La Stampa.

Theresa May has finally spoken. In a major speech, she has set out her plans to trigger Article 50 and negotiate Brexit. The announcement has brought clarity on the timetable for negotiations, which will start no later than March 2017 and probably last for 2 years. But May also gave the clearest information yet about the British government’s aims, setting out some key “red lines”. Of course, such lines are drawn in sand, not stone, and they can change in the course of negotiations. But compromise is politically difficult, so we should expect the UK to fight for its position.  It is therefore worth unpacking what these red lines imply for the future of EU-UK relations. The signs are not good those for those who support a “soft Brexit”.

The first and most important point is about sovereignty. As Prime Minister May puts it: “We are going to be a fully-independent, sovereign country, a country that is no longer part of a political union with supranational institutions that can override national parliaments and courts.” And she continues: “We will be free to pass our own laws….And we are not leaving only to return to the jurisdiction of the European Court of Justice.” These statements are clear and have clear implications for the nature of the future relation between the EU and the UK. There cannot be anything even closely resembling the deep integration of the single market.Far-reaching integration like the single market needs much more than a shared set of standards and rules. It also needs a uniform enforcement of these rules through supranational institutions like the European Court of Justice and the European Commission.

Far-reaching integration like the single market needs much more than a shared set of standards and rules.

This is not just a theoretical observation but an issue with immediate economic consequences. So-called passporting (the ability to provide banking services across borders) is only conceivable within a supranational jurisdiction. And it is not only financial services that are concerned. In many other sectors, such as healthcare, it is shared standards and their enforcement that are most important in facilitating international trade — not tariffs, which are already low. Just as vital is the supranational surveillance of competition and state aid, without which unfair competition and dumping can become a real threat to business and consumers.

What other arrangement is possible? One obvious alternative is a free trade agreement.

Since anything closely resembling single market membership has been excluded by the British PM’s choice of red lines, one question naturally arises. What other arrangement is possible? One obvious alternative is a free trade agreement. The PM immediately mentioned the mantra of “Global Britain”. But with almost 48% of UK goods exports going to the EU, the first priority for the UK would surely be to forge a deal with the EU. Such a deal would exclude large parts of the services sector, in which the UK is relatively strong. But the UK’s hand will be weakened further by the fact that no EU country sends more than 14% of their total exports to the UK. The EU could well try to leverage that relative strength in negotiations.

The negotiations for the CETA agreement with Canada started more than seven years ago.

However, there are also potential pitfalls on the EU side. Even in a scenario where the EU institutions were willing to engage with the UK and develop a mutually-beneficial trade deal, no outcome can be guaranteed. For a start, trade negotiations can take a long time. The negotiations for the CETA agreement with Canada started more than seven years ago. Moreover, even with cooperative EU institutions, it is far from certain that any trade deal would be implemented. Although EU law formally gives the EU an exclusive competence on trade negotiations, this supremacy is now in question. In particular, after the European Commission’s decision to allow all EU member states to pre-approve the CETA deal, it has become unclear whether the EU is actually still able to forge meaningful new trade deals. As a consequence, Britain may leave the EU without a new trade deal in place, and with uncertain prospects of a new deal anytime soon.

The consequences of such a “hard divorce” could be painful for business and citizens, but there are also some reasons for hope. The PM has announced that the British government will enact a law to incorporate all EU law into UK law. That could offer the basis of an interim trade agreement. However, the UK would have to fully follow EU law to minimise disruptions until a new arrangement was agreed. In this case, of course, the UK’s regained “sovereignty” would remain an illusion.

Kategóriák: Economy

China’s state-owned enterprises reform still lacking bite

2016, október 4 - 14:43

This op-ed was originally published in Nikkei.

Large SOEs are known for their low efficiency, heavy debt loads and poor corporate governance. Returns on assets have been decreasing in China over the last few years and are now lower than those of most emerging economies. This could reduce the country’s growth unless action is taken.

On July 26, the State Council issued new guidelines on reform of central government-owned companies. The aim is to classify SOEs into four groups — strategic, innovative, to be consolidated and to be cleaned up — according to their sector and to clarify the outlook for each group by 2020.

The new outline however may not provide a smooth pathway to improve efficiency or reduce moral hazard. Nor does the policy guideline necessarily mean there will be a Darwinian winnowing of unviable entities. In fact, closer examination shows that there were few references to unviable SOEs that need to disappear.

All in all, the policy outline has too few sticks and too many carrots to change the behavior of SOEs.

A reduction in the size of SOEs does not seem to be a key objective, which means that the crowding out of the private sector by the public sector looks to be here to stay. In fact, only the very small part of the SOE universe classified in the guidelines as “to be cleaned up” — is set to shrink. This boils down to just the steel and coal industries and only accounts for 5% of total SOEs. China’s overcapacity problem extends well beyond these two sectors.

Moreover, there are growing signals that Beijing will not allow further defaults by SOEs in these two sectors and that the government prefers alternatives such as injections of bank capital and debt-for-equity swaps. Consolidation is another more favored option even for industries suffering from overcapacity and marked for cleanup, as seen in the announcement Sept. 21 that Baosteel Group will merge with Wuhan Iron & Steel Group.

Not convincing

The new reforms do open the door to private capital but only for companies put in the innovation group. This is a narrower opening than what was announced at the National People’s Congress session in March 2014.

Some 45% of central government SOEs have been classified as strategic by their asset size, which indicates the government will definitively retain control of a big chunk of state companies. Furthermore, no clarification has been given to the meaning of private participation as the word “control” was carefully avoided in the State Council’s statement.

It will not be easy to convince private investors with such unclear guidelines. This means that more will need to be done to attract capital, especially in an environment of very low returns on assets. Unless there are further clarifications or additional sweeteners forthcoming from the government, public-private partnerships will remain sporadic.

While the cry for reform is loud, the reality is that SOE investment still supports China’s economic growth. Fundamental reform would be too disruptive in the short run and long-term benefits are not the key consideration for the Chinese government now. There is indeed a trade-off between reform and short-term growth, and Beijing has made growth its priority.

Although there would be clear benefits in terms of resource allocation and an increase in returns on assets, the cost of funding for SOEs would increase if there were real restructuring. It is evident the role of the state in production will not be reduced any time soon in China. In fact, the assets of SOEs have only increased in the last few years compared with those of private companies.

The thunder of reform has been loud, but the rain has been rather light. The government continues to drag its feet on SOE reform and the liberalization of markets. The disappointing guidelines on SOE reform fall short of the needed Darwinian action to improve efficiency and returns on assets. Meanwhile, lax monetary policy will continue to feed the liquidity needs of government-owned companies, especially in overcapacity industries.

Via mergers, the consolidation process will continue but China will end up with even larger SOEs this way. Given that these mergers will be politically driven, efficiency gains cannot be expected and the companies will become much harder to manage. As SOEs become even larger, the risk of crowding out the private sector only increases. In this scenario, we should not expect returns on assets in China to increase anytime soon, to the detriment of the country’s potential growth.

Kategóriák: Economy

EU-UK future constitutional relationship

2016, október 4 - 10:50

The Committee on Constitutional Affairs held an exchange of views on the future constitutional relationship of the United Kingdom with the European Union after the June 23 referendum in the UK.

Watch the video recording


Kategóriák: Economy

Can North Africa’s energy challenges become opportunities?

2016, október 3 - 16:41

It is in Europe’s interest to foster stability, security and prosperity in North Africa. But so far Europe’s attempts to promote economic and political reform in the region have failed. The aftermath of the so-called ‘Arab Spring’ demonstrates the limitations of the EU’s leverage over economic and political developments in North Africa. But it also illustrated that ignoring the region is not an option. Enhanced energy cooperation with selected countries in the region might well be a way to change this scenario.

Economic development is key to stability, security and prosperity. Today, energy is an Achilles heel to economic development of North Africa, and the situation is set to deteriorate. Energy demand in the region is surging.: over the last decade it grew by 4 percent per year (compared to zero growth in OECD Europe). This trend will likely continue due to urbanization and increasing population.

In energy exporting countries, strongly growing domestic demand has already reduced energy exports. Algeria’s gas exports dropped by 40 percent over the last decade, while Egypt (a well-established gas exporter) even became importer in 2014. Such developments badly impacted the countries’ current accounts and fiscal situations. This situation is also exacerbated by the widespread universal energy subsidy schemes. This is clearly exemplified by the case of Egypt: in 2015 energy subsidies constituted a burden of $35 billion on the country’s public finances, and this number could quickly rise if oil prices increase again. In 2013 – before oil prices dropped by 65 percent – subsidies in Egypt were, in fact, $45 billion. Just to provide a comparison, the tentative agreement between Egypt and the IMF reached in August 2016 was focused on a loan of $12 billion over three years.

In energy importing countries, strongly growing domestic demand has substantially increased oil and gas import requirements. For instance, Morocco’s gas import requirements doubled over the last decade, while Tunisia’s even tripled. Under these conditions even a modest rise in oil and gas prices could translate into substantial economic turmoil.

However, such a growing energy demand also represents a significant opportunity for investment and sector reform. If North Africa could turn its vast regional renewable energy potential into reality, it would help to meet the increasing energy demand and create employment, and would also release the region’s hydrocarbon resources for profitable export to Europe. If generation capacity were to follow the 4% increase in annual electricity demand, about 2.5 Gigawatt of additional power plant capacities will have to be installed in the five MENA countries every year. A corresponding role-out of photovoltaic installations would have cost in the order of € 3-5 bn.

Given the limited fiscal space in North Africa (all countries currently run fiscal deficits) such sums can only be mobilized by scaling up private investment in the region. In this, Europe might well have a role to play, particularly through its public finance institutions. Long-term public investors such as the European Investment Bank, the European Bank for Reconstruction and Development, Germany’s Kreditanstalt für Wiederaufbau, Italy’s Cassa Depositi e Prestiti and France’s Caisse des Dépôts et Consignations, are already financing renewable energy projects in the region. However, the actions of institutions are not coordinated, and they avoid taking risks and fail to use their leverage to make energy sector overall more attractive to investors. So the impact of their investments is essentially limited to the financing of pilot projects.

The EU should take the political decision to coordinate the North African activities of these public long-term investors, to enable economies of scale and stronger leverage. To facilitate the coordination work, established new Sustainable Energy Fund should be established. The fund could amount to some €3 billion per year – 10 percent of what Europe has promised in annual climate finance.

The mechanism would involve the public long-term investors, governments of interested North African countries, and international energy companies that operate in the region. It would work as follows: i) the public long-term investors would provide risk-mitigation and credit-enhancement tools to cover the country risk faced by international energy companies. This risk might change over time, as the political situation in a country evolves. Reducing the risk can enable the country to attract more investment because of lower interest rates, in effect providing an investment insurance mechanism. ii) International energy companies would take on the commercial risk, to ensure the commercial viability of the projects proposed. iii) The governments of the selected countries would contribute by committing to maintain stable regulatory conditions for the given projects. Should they fail to do so, the banks will discontinue lending – and the EU will exercise some political and economic leverage to ensure repayment of existing obligations.

This mechanism should be able to provide a solid response to the evidence that investors might jump into the North African sustainable energy sector only if a proper risk-adjusted return is considered as guaranteed.

This arrangement would help North African countries to better meet domestic energy demand and thus stimulate economic development. It would also contribute to climate change mitigation. And it would represent a business opportunity for European energy companies, which should be particularly welcome given the sluggish energy outlook within Europe, and given that North Africa is also on the radar of others players, such as Chinese companies, that have the advantage of operating more comfortably in the region due to the financial backing of their government.


Kategóriák: Economy

Fiscal capacity to support large banks

2016, október 3 - 16:23

During the global financial crisis and subsequent euro-debt crisis, the fiscal resources of some countries appeared to be insufficient to support their banking systems. These countries needed outside support to stabilise their banking systems and thereby their wider economies.

This Policy Contribution assesses the potential fiscal costs of recapitalising large banks. Based on past financial crises, we estimate that the cost to recapitalise an individual bank amounts to 4.5 percent of its total assets. During a severe crisis, a country might have to recapitalise up to three of its large systemic banks. We assume that bail-in of private investors is not fully possible during a systemic crisis.

Our empirical findings suggest that large countries, such as the United States, China and Japan, can still provide credible fiscal backstops to their large systemic banks. In the euro area, the potential fiscal costs are unevenly distributed and range from 4 to 12 percent of GDP. Differences in the strengths of the fiscal backstops in euro-area countries contribute to divergences in financing conditions across the banking union.

To counter this fragmentation, we propose that the European Stability Mechanism (ESM) could be used as a fiscal backstop to recapitalise systemically important banks directly within the banking union, in the case of a severe systemic crisis. But this would be only a last resort, after other tools such as bail-in have been used to the maximum extent possible. The governance of the ESM should be reconsidered, to ensure swift and clear application in times of crisis.

Kategóriák: Economy

Trumping Trade

2016, október 3 - 11:27

Bonus: if watching the debate unsettled you, think that Jonathan Mahler at the NYT had to do it with sounds off and no captioning! The idea was to test the theory that what presidential candidates say during debates is less important than what they look like while they’re saying it. Watch some of his clips, if you have a thing for mute surrealist cinema

A paper by Peter Navarro and Wilbur Ross, both senior policy advisors to the Trump campaign, sets out the Trump camp’s position. They argue that Trump’s trade plans will bring in $1.74 trillion of additional Federal tax revenues. Assuming wages are 44 percent of GDP, they argue that eliminating the US trade deficit would result in $220 billion of additional wages. This additional wage income would be taxed at an effective rate of 28 percent, yielding additional tax revenues of $61.6 billion. Furthermore, businesses would earn at least a 15% profit margin on the $500 billion of incremental revenues, which would translate into pretax profits of $75 billion. Applying Trump’s 15% corporate tax rate, this results in an additional $11.25 billion of taxes. This would leave businesses with $63.75 billion of additional net profit which must be distributed between dividends and retained earnings. If businesses pay out one third of this additional profit as dividends and these $21.25 billion worth of dividends are taxed at a rate of 18%, this yields another $3.8 billion of taxes, after which there remains $17.45 billion of net income. Together, these tax revenues from wage, corporate, and dividend income total $76.68 billion per year and over the standard ten-year budget window, this recurring contribution to the economy cumulates to $766.8 billion dollars of additional tax revenue.

Navarro and Ross then argue that two more sets of revenue should be added to this total. Under the dividend payout schedule, businesses will retain $42.5 billion of cash flow after paying both taxes and dividends. Under the assumptions of the paper, reinvesting this $42.5 billion each year would generate another $120.21 billion of pretax profits and taxes of $18.04 billion over the standard 10-year budget window. Adding these increments to the previous calculation results in a ten-year direct incremental contribution to Federal tax revenues of $766.8 billion in 2016 dollars, which turn into $869.76 billion when a 1.1082 inflation factor is applied. To account for multiplier effects, Navarro and Ross also add a multiplier of 1.0, which would produce a grand total of $1.74 trillion of additional Federal tax revenues from trade .

Marcus Noland, commenting on the Navarro and Ross paper over at PIIE, says that the authors owe much to the literary genre of “magic realism”. Magic realism was developed by Latin American writers in the 1970s, and its most distinguishing feature is a mix of wild juxtapositions and metaphysical leaps. According to Noland, the thinking that gets Navarro and Ross to the $1.74 trillion figure is truly magical. He argues that their assessment of the causes of weak economic growth entirely ignores the ongoing debate about the sources of productivity growth and the possibility that the rate of technological change is slowing. Instead, they focus on trade. Economists generally believe that the magnitude of a nation’s trade deficit fundamentally reflects the difference between saving and investment. Trade policy can affect the sectoral and geographic composition of the deficit, but in the long run the trade balance is determined by the savings-investment balance. If you want to lower the nation’s trade deficit, increasing the saving rate would be the right place to start – , not launching a trade war. But there is no word of this in Navarro and Ross’ paper, which is all about perfidious foreigners and incompetent trade negotiators. Noland accepts that this might make for a more exciting storyline, but it does not constitute a persuasive defense of their solution to the trade deficit.

Marcus Noland, Gary Clyde Hufbauer, Sherman Robinson, and Tyler Moran at the Peterson Institute of International Economics have a report assessing trade agendas in the US presidential campaign.

While Clinton has expressed skepticism about aspects of trade deals in the campaign, Nolan et al. argue that in effect she represents stasis. In her political career, Clinton has not taken a doctrinaire position on trade. As First Lady she supported NAFTA, but while campaigning for the 2008 Democratic presidential nomination, she described NAFTA as “a mistake.” While representing New York in the Senate, she voted in favor of six preferential trade deals (FTAs with Chile, Singapore, Australia, Morocco, Bahrain, and Oman); against two (the Central American Free Trade Agreement and the FTA with Panama); and did not vote on two others (the agreements with Jordan and Peru). She expressed opposition to the FTAs with Colombia and South Korea. Later, while serving as secretary of state, Clinton reversed her opposition to these agreements and helped persuade Congress to pass them.

In the 2016 campaign, Clinton has made enforcement of existing trade laws, aimed at preventing abuses by trading partners, the centerpiece of her trade policy. She supported TPP as secretary of state, calling it “the gold standard” of trade agreements, but she has come out in opposition to it during the campaign. Some TPP advocates hope that the agreement could be ratified during a lame duck session (between the election and the seating of new Congress in January). Others hope that if she were elected, Hillary Clinton could replicate Bill Clinton’s maneuver in the early 1990s, when he opposed NAFTA while campaigning against George H. W. Bush and then supported its passage in office. Nolan et al. argue that this would still have implicit costs, citing estimates according to which each year’s delay in implementing TPP represents a $77 billion to $123 billion permanent income loss for the United States, depending on the discount rate applied Petri and Plummer (2016).

Trump has stated that he would impose a 35 percent tariff on imports from Mexico and a 45 percent tariff on Chinese goods, as a countervailing action against alleged currency undervaluation. He has proclaimed that he would “rip up” existing trade agreements, renegotiate NAFTA and may withdraw from the WTO over the imposition of tariffs, possibly firm-specific, on products made in Mexico by US firms. A first question is whether the President actually has the legal authority to do this kind of thing. In a legal analysis, Gary Clyde Hufbauer argues that there is ample precedent and scope for a US president to unilaterally raise tariffs as Trump has vowed to do. Any effort to block Trump’s actions through the courts, or amend the authorizing statutes in Congress, would be difficult and time-consuming.

A second question regards the economic effects. Nolan et al. extend a macroeconomic model from Moody’s Analytics and estimate that Trump’s proposals on international trade, if implemented, could unleash a trade war that would plunge the US economy into recession and cost more than 4 million private sector American jobs. In a separate chapter Noland analyzes the impact of trade policies advocated by both Trump and Clinton on the United States’ foreign policy interests. Pulling out of the TPP, as both candidates promise to do, would weaken US alliances in Asia and embolden its rivals, thus eroding US national security. Noland also warns that abrogation of NAFTA, as Trump threatens, would deliver a severe blow to Mexico’s economic and political development that could increase, not decrease, the flow of illegal migrants and drugs into the United States (see figures 1 and 2). An earlier comprehensive analysis of Trump’s economic policies by Moody’s is accessible here.

Figure 1

Figure 2

On the morning after the debate, Paul Krugman said that Trump on trade was “ignorance all the way”. Krugman points in particular to Trump’s statements in which he seemed to think that Mexico’s VAT tax rate is actually an unfair trade practice on US imports to Mexico. In a follow up post, Krugman points out that the Republican campaign’s white paper on economics has a VAT discussion that is utterly uninformed, suggesting Trump was probably saying ignorant things fed to him by incompetent economic advisers. More broadly, Trump’s whole view on trade is that it is all about dominance, and that the US is weak. And even if you think we have pushed globalisation too far – Krugman says – even if you are worried about the effects of trade on income distribution, that is just a foolish way to think about the problem. So “Trump blustered more confidently on the subject of trade than on anything else, but he was talking absolute garbage even there”.

Both Krugman and Tyler Cowen quote a paper by Joel Slemrod on the subject of whether VAT promotes exports. Slemrod argues that this is not the case, and suggests a three-step process to convince oneself. First step, understand why a uniform VAT is equivalent to a uniform RST [retail sales tax]; both tax domestic consumption regardless of where goods or services were produced. Second step, calmly reassure oneself that, as is intuitive, an RST does not favor domestic over foreign production and neither encourages nor discourages exports or imports. This implies step three: that a VAT (like an RST) neither encourages nor discourages exports or imports. If step three fails, return to steps one and two until fully convinced.

Greg Mankiw agrees with Krugman on Trump’s advisers. Their analysis of trade deficits boils down to the following: We know that GDP=C+I+G+NX (consumption + investment + public spending + trade balance).  The trade balance (NX) is negative, therefore, if we somehow renegotiate trade deals and make NX rise to zero, GDP goes up! They calculate this will bring in $1.74 trillion in tax revenue over a decade, but of course you can’t model an economy just using the national income accounts identity. Trade deficits go hand in hand with capital inflows, so an end to the trade deficit means an end to the capital inflow, which would affect interest rates, which in turn influence consumption and investment. Mankiw argues that such calculations might make sense in the simplest Keynesian Cross model, in which investment is exogenously fixed  and consumption only depends on income.  But that is surely not the right model for analyzing the impact of trade policy over the course of a decade.

Jared Bernstein writes that, before the first presidential debate fades into the next news cycle, we need to realize that we need a new paradigm for trade policy. The outsider campaigns of Trump and Sanders, along with the realities of the many people and communities hurt by globalization, have elevated international trade as a major issue in this election. Trump advertises an unrealistic nostalgia, a return to a time when trade flows were a fraction of their current size. His statements during the debate underscore the fact that there is no coherent plan to get back there even if we wanted to. Clinton correctly points out that “we are 5 percent of the world’s population; we have to trade with the other 95 percent.” She aspires to reshape, not restrain, globalization. What’s needed is a framework for the type of “smart, fair trade deals” that Clinton says should be the norm. Yes, that framework should include enforceable disciplines against other countries’ currency management, something both candidates support. But much more is needed.

Bernstein refers to a proposal paper published by himself and Lori Wallach, which include both process reforms and new negotiating objectives. Bernstein and Wallach argue that the process by which trade agreements are negotiated must change in the direction of enhanced transparency and accountability. They also propose a set of initiatives that should be part of what they call the “new rules of the road for trade”. These initiatives include enforceable currency disciplines, enforceable and substantive labor and environmental rights and standards, tighter terms regarding “rules of origin”, facilitating export opportunities, combating transshipment and selecting appropriate trade partners. Bernstein and Wallach argue that their ideas, if adopted, would increase the transparency of trade negotiations, reduce corporate influence over the eventual agreements, discontinue protectionist practices and provisions that put sovereign laws and taxpayer dollars at risk, and strengthen environmental, health, and labour standards in the US and abroad.

Kategóriák: Economy

Taxpayer should not facilitate risky bank cocos

2016, szeptember 30 - 16:32

During the great financial crisis, banks appeared to be heavily undercapitalised. Banks had as little as 2 percent equity capital of risk-weighted assets (so-called tier 1 capital) and were allowed to count sub-ordinated debt as capital (so-called tier 2 capital). However, this subordinated debt did not absorb losses, when it was needed during the crisis.[1] To correct for that, the Basel Committee proposed higher and better quality capital for banks in the Basel 3 capital accord. The focus was on Core Equity Tier 1 (CET1) capital, which was increased from 2 to 4.5 percent of the risk-weighted capital ratio. So far, so good.

But then the bank lobby started again. Under pressure from the US, the Basel Committee allowed cocos as additional tier 1 capital (as well as tier 2 capital). These cocos can contribute to 1.5 percent of the risk weighted capital ratio. Cocos are contingent convertible bonds that convert to equity if the regulatory capital ratio drops below a certain pre-determined threshold. More recently, the ECB (2016) has eased banks’ capital burden by replacing a portion of binding requirements with non-binding guidance.[2] This change makes it less likely that banks will face restrictions on dividends, bonuses and additional Tier 1 coupon payments.

Why are cocos so popular with bankers?

The tax-deductibility of interest has spurred the push towards the increasing use of debt as regulatory capital, in an attempt to have the best of both worlds: Telling the regulator that these ‘capital instruments’ can absorb losses, like equity, while at the same telling the taxman that these instruments are debt, so that interest payments can be deducted for corporate tax (Schoenmaker, 2015). The latter reduces the private costs of debt for banks. Cocos are thus an example of having your cake and eat it.

More broadly, Allen et al. (2011) argue for equal treatment of equity and debt for corporate tax purposes. They note that it is not clear why in many countries debt interest is tax deductible at the corporate level but dividends are not. There does not seem to be any good public policy rationale for having this deductibility, which appears to have arisen as an historical accident. If tax deductibility is why there is a desire to use debt rather than equity, then the simple solution is to remove the tax deductibility.

The same policy mistake again

It looks like history is repeating itself. Before the crisis, subordinated debt was promoted by academics because of its disciplinary function (e.g. Flannery 2001). As banks with higher asset risk have to pay higher interest rates on subordinated debt, such debt can induce banks to lower asset risk in order to reduce interest payments. Next, indirect discipline may happen when regulators take prompt corrective actions against banks with high subordinated debt yields or banks unable to roll over subordinated debt. These corrective actions may not only prevent further losses of problem banks, but also stop bank managers from pursuing unsound risk.

But it did not work as envisaged. First, subordinated debt yields were only partly rising, as investors (with hindsight rightly) expected to be bailed out. Next, subordinated debt (and bail-in debt) may work in the case of an idiosyncratic failure, but not during widespread banking crisis as authorities may not want to spread contagion by writing down subordinated / bail-in debt.[3]

Several academics question the financial stability implications of bail-in debt and cocos. Avgouleas and Goodhart (2015) call for a closer examination of the bail-in process, if it is to become a successful substitute to the unpopular bailout approach. They argue that bail-in regimes will fail to eradicate the need for an injection of public funds where there is a threat of systemic collapse, because a number of banks have simultaneously entered into difficulties, or in the event of the failure of a large complex cross-border bank, except in those cases where failure was clearly idiosyncratic.

Similarly, Chan and Van Wijnbergen (2015) show that while the coco conversion of the issuing bank may bring the bank back into compliance with capital requirements, it will nevertheless raise the probability of a bank run, because conversion is a negative signal to depositors about asset quality. Moreover, conversion imposes a negative externality on other banks in the system in the likely case of correlated asset returns, so bank runs elsewhere in the banking system become more probable too and systemic risk will actually go up after conversion. This is a form of information contagion.

These predicted contagion effects have proved to be real. Deutsche was at the centre of the market volatility earlier this year in February when investors grew concerned about the potential for it to stop paying coupons on its additional tier 1 cocos because of a multibillion-euro loss in 2015 (FT, 2016). During February’s sell-off, the market for selling new cocos shut down entirely. Since then, there have been a handful of new sales, most recently from BBVA in Spain and Rabobank in the Netherlands in April.

Cocos thus lead to a direct conflict between micro- and macroprudential objectives. There is an emerging consensus that macro stability concerns should have priority over micro soundness concerns (Schoenmaker 2014). There is a limit to the extent that bail-in debt or contingent convertible capital can replace real upfront equity capital.

Forgone tax revenues

The European coco market was first launched in 2013 and now stands at €171 billion. Table 1 presents an overview of outstanding cocos and calculates the tax savings for banks. All European countries, except for Ireland, allow tax deductibility. Interestingly, also the United States does not allow tax deductibility of interest payments on cocos. Our calculations show that European taxpayers forego up to €2.7 billion in corporate tax revenues, because of the tax deductibility. In particular, the countries with large banks (France, Spain, Switzerland and the United Kingdom) have substantial foregone tax revenues.

!function(e,t,i,n,r,d){function o(e,i,n,r){t[s].list.push({id:e,title:r,container:i,type:n})}var a="script",s="InfogramEmbeds",c=e.getElementsByTagName(a),l=c[0];if(/^\/{2}/.test(i)&&0===t.location.protocol.indexOf("file")&&(i="http:"+i),!t[s]){t[s]={script:i,list:[]};var m=e.createElement(a);m.async=1,m.src=i,l.parentNode.insertBefore(m,l)}t[s].add=o;var p=c[c.length-1],f=e.createElement("div");p.parentNode.insertBefore(f,p),t[s].add(n,f,r,d)}(document,window,"//","d4522123-2b9b-4ee5-a957-ba855f644075","interactive",""); Sweden is reversing the policy mistake

Sweden is now the first to correct the policy mistake. In the Budget Bill for 2017, the Swedish government proposes a ban on deductions for interest expenditure on certain subordinated liabilities, such as cocos (Sweden, 2016). The Swedish taxpayer will thus stop facilitating Swedish bank cocos.

The abolishment of tax deductibility will reduce the popularity of cocos. On the policy front, we recommend other countries to follow the example of Sweden (as well as of Ireland and the United States).

The author would like to thank Bennet Berger for excellent research assistance.

[1] Subordinated debt only absorbs losses in case of insolvency, but not in the case of bailout, which was the commonly used instrument of government support during the crisis.

[2] Supervisors can set additional capital requirements (pillar 2 add-ons). The ECB has decided to split these Pillar 2 add-ons in a hard requirement and guidance. If the pillar 2 requirement is not met, the distribution of profits is capped by the so-called maximum distributable amount. However, if Pillar 2 guidance is not met, banks can still distribute profits in the form of dividends and additional tier 1 coupon payments.

[3] A good example is ING: doubt arose about the interest payment on the subordinated debt of ING at the height of the financial crisis in Autumn 2008. Some investors questioned publicly whether ING would meet the upcoming interest payments on its subordinated debt. Although ING meant to meet the next interest payment, the supervisor did not permit ING to say so as payments on subordinated debt are conditional on meeting certain capital ratios at the time of payment. After a sharp drop in the share price, the supervisor gave special permission to ING to announce that it was planning to meet its upcoming interest payments (Avgouleas et al. 2013).



Allen, F., Beck T., Carletti, E., Lane, P., Schoenmaker, D., and W. Wagner (2011), ‘Cross-Border Banking in Europe: Implications for Financial Stability and Macroeconomic Policies’, London: CEPR Report.

Avgouleas, E., C. Goodhart and D. Schoenmaker (2013), ‘Bank Resolution Plans as a Catalyst for Global Financial Reform’, Journal of Financial Stability, 9, 210-218.

Avgouleas, E. and C. Goodhart (2015), ‘Critical Reflections on Bank Bail-ins’, Journal of Financial Regulation 1, 3-29.

Chan, S. and S. van Wijnbergen (2015), ‘Cocos, Contagion and Systemic Risk’, CEPR Discussion Paper No. 10960.

European Central Bank (2016), Frequently asked questions on the 2016 EU-wide stress test, Frankfurt, available at:

Financial Times (2016), ECB is having second thoughts on ‘coco’ bonds: Bankers say hybrid securities could undermine a lender’s financial position in a crisis, 24 April.

Flannery, M. J., 2001. The faces of “market discipline”. Journal of Financial Services Research, 20 (2/3), 107-119.

Schoenmaker, D. ed., 2014. Macroprudentialism. VoxEU eBook, London: CEPR.

Schoenmaker, D. (2015), ‘Regulatory Capital: Why Is It Different?’, Accounting and Business Research, 45, 468-483.

Sweden (2016), Budget Bill for 2017: Reform and Financing Table, September, available at:

Kategóriák: Economy

EZB-Chef Draghi enteignet die Sparer nicht

2016, szeptember 30 - 10:50

This op-ed was originally published in Manager-Magazin.

Wenn sich EZB-Präsident Mario Draghi den unbequemen Fragen der Bundestagsabgeordneten stellt, werden die Hauptkritikpunkte sein, dass die EZB-Politik die langfristigen Zinsen übermäßig nach unten treibt, somit den deutschen Sparer enteignet und die Finanzstabilität gefährdet. Das Fazit vieler Politiker lautet: Der EZB-Präsident liegt falsch mit seiner Politik. Es sei an der Zeit, gegenzusteuern und die Zinsen anzuheben. Wirklich?

Zunächst die Fakten: Die Inflationsrate im Euroraum ist seit Anfang 2011 rückläufig und hat sich erst seit Beginn des „Quantitative Easing“-Programms bei um die 0 Prozent stabilisiert. Die Kerninflationsrate, also die Inflationsrate, die volatile Schwankungen von Energie- und Lebensmittelpreisen herausrechnet, ist ebenfalls stabil bei weniger als 1 Prozent. Die gemessene Inflation ist also weit unter dem Inflationsziel der EZB von knapp unter 2 Prozent. Auch die Inflationserwartungen sind eher schwach und liegen weit unter der Zielmarke.

In einer solchen Situation sollte die Geldpolitik ihre Zinsen möglichst niedrig halten, um Anreize für Investition zu geben und Sparen relativ unattraktiv zu machen. Dies ist die normale Operation der Geldpolitik. Die EZB geht aber weiter und beeinflußt direkt die langfristigen Zinsen. Sie tut dies, da die kurzfristigen Zinsen nicht weit unter null fallen können.

Der Realzins ist nicht niedriger als vor fünf Jahren

Ist die Nutzung dieser Instrumente im Euroraum unangemessen? Ist die EZB dafür verantwortlich, dass Sparer im Euroraum kaum noch Zinsen erhalten? Zunächst einmal ist festzuhalten, dass der aktuelle Realzins, also der reale Ertrag, den eine Investition erbringt, bei weitem nicht so stark gefallen ist, wie es der Nominalzins suggeriert. Da die Inflationsraten massiv gefallen sind, ist der Realzins heute vergleichbar mit dem Zins vor etwa fünf Jahren. Dank der geringen Inflation leidet der Sparer also weniger, als es den Anschein hat. Richtig ist aber auch, dass der Realzins niedrig ist.

Die Antwort auf die Frage, ob die EZB eine übermäßig expansive Politik macht, hängt letztlich vom sogenannten „Gleichgewichtszins“ ab, bei dem Sparen und Investitionen im Ausgleich sind und die Inflation in Höhe der Zielmarke liegt. Es gibt gute Gründe dafür, dass dieser Gleichgewichtszins derzeit negativ ist, der langfristige Zins fällt bereits seit den 1980er Jahren. Die EZB Politik ist somit angemessen, um trotz des negativen Gleichgewichtszinses einen Beitrag zur Inflation zu liefern.

Die EZB stößt an ihre Grenzen

Eine andere Frage ist es, ob die EZB Politik unangemessene Risiken für die Finanzstabilität mit sich bringt. Bis dato gibt es aber eher wenige Indikatoren, die auf ein Stabilitätsrisiko hinweisen. So entwickeln sich die Kreditvolumina in der Eurozone weiterhin schwach. Allerdings ist es wahr, dass die Profitabilität von Banken durch die niedrigen Zinsen leidet. Insbesondere können Banken negative Zinsen nicht an ihre Kunden weitergeben, so dass ihre Margen fallen. Vor diesem Hintergrund scheint es nicht angemessen, die Zinsen noch weiter nach unten zu treiben. Schließlich hat die EZB nicht das Recht, unangemessen die Struktur des Bankensystems zu verändern. Die EZB scheint an ihre Grenzen zu stoßen. Zwar sollte sie ihr Kaufprogramm weiter aufrechterhalten, aber ein weiteres Absenken der Zinsen würde Risiken bergen.

In einer Liquiditätsfalle sind andere wirtschaftspolitische Maßnahmen gefragt. So fordert der EZB Präsident seit Jahren zu Recht, dass Strukturreformen und Haushaltspolitik der nationalen Regierungen eine größere Rolle spielen müssen als die Geldpolitik der Notenbank. Strukturreformen sollten insbesondere neue Märkte öffnen und somit Anreize für neue private Investitionen liefern. Hierbei sind alle Regierungen in der Eurozone gefordert.

Auch die deutsche Politik sollte in der aktuellen Situation die EZB unterstützen, statt ihr die Arbeit zu erschweren. Die Investitionen in Deutschland sind schon seit Jahren schwach und ein Leistungsbilanzüberschuss von fast 9 Prozent zeigt, dass es wesentlich mehr Ersparnisse als Investitionen gibt. Gleichzeitig steigen auch die Löhne und Gehälter eher schwach.

Die Regierungen müssen handeln

Es wäre sinnvoll, mit gezielten Reformen Anreize für mehr Investitionen etwa im Dienstleistungssektor zu geben. Deutschland hinkt international in diesem Bereich immer noch hinterher. Gleichzeitig könnte die Regierung die Budgetüberschüsse nutzen, um Unternehmen Investitionsanreize in Deutschland zu geben. So würden beispielsweise generösere Abschreibungsmöglichkeiten die Investitionssituation verbessern. Mit öffentlichen Investitionen könnte die Infrastruktur verbessert werden, was wiederum zusätzliche private Investition ermöglichen würde.

Diese Maßnahmen würden letztlich auch den deutschen Arbeitnehmern helfen, deren Löhne durch einen verbesserten Kapitalstock steigen würden. Möglich wäre auch, die Einkommenssteuer im Niedriglohnbereich zu senken, um die Kaufkraft der Haushalte zu stärken und den Konsum zu stützen, wie kürzlich von der OECD angeregt.

All diese Reformen würden dazu beitragen, dass deutsche Sparer wieder höhere Erträge erwirtschaften können. Denn reale Erträge hängen von guten wirtschaftlichen Strukturen ab. Die Bundestagsabgeordneten sollten also zunächst Reformen von der eigene Regierung einfordern, bevor sie den EZB-Präsidenten kritisieren.

Kategóriák: Economy