Germany finds pay balance that’s right for Europe

The days of excessive German wage restraint are over, as the latest deal at Volkswagen shows. Wages are set to outpace inflation but not productivity. That’s enough to help consumer spending without harming employment. Germany’s European trading partners should cheer.

For years, German wage policies were bad for the euro zone. The latest wage deal at Volkswagen, announced on Tuesday, confirms that era is over.

Until the crisis, average pay in Germany increased slowly, in many years less than consumer prices and productivity. The very slow progress of real wages was great for the cost competitiveness of German exports, but decreased demand for imports from other members of the single currency. Continue reading

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German carmakers should beef up R&D, not lobbying

The country’s manufacturers are fighting tougher European emission guidelines. The attack may serve short-term profit but is misguided from a broader perspective. Rather than lobbying for the status quo, the industry should invest more in low-emission mobility.

In the European car industry, history does repeat itself. The lesson: ignore industry pleading.

Carmakers don’t like emission limits. In the run up to the first set in 2008, they claimed the proposed standard was all but impossible to meet. Up to 2008, carbon emissions of new cars were falling by just 1 percent per year. Then, wonderful to recount, the rate of progress quadrupled. Today, new cars’ carbon emissions are 20 percent lower than a decade ago and the 2020 targets are looking plausible. Continue reading

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Soccer success mirrors Germany’s secret strengths

For the first time ever, both teams in Europe’s biggest championship were German. In 2000, the country was the sick man of the pitch. The sport’s resurgence, like the economic renaissance, relied on the social market economy and the ability to push through structural reforms.

In 2000, Germany was the sick man of Europe. Not only was the economy stumbling, but the national football team was knocked out of the European Championship without winning a single game. That failure was reflected in UEFA’s Champions League, a grouping of leading European sides. From 2002 to 2009, no German club made it past the quarter-finals. Continue reading

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New model Mercedes is make or break for Daimler

The German carmaker drove the next version of its flagship Mercedes off the forecourt on May 15. Much depends on the success of the new S class. The luxury sedan might be an amazing car, but shifts in market tastes and sales problems in China may undermine its success.

Daimler launched its new Mercedes S class on Wednesday. Much depends on the luxury sedan. Its predecessor generated 5.6 percent of car sales but – according to a Breakingviews estimate – created at least twice as much in terms of operating profit. If the new S class is as successful as earlier versions, Daimler’s profit could be boosted by several hundred million euros in 2014. Continue reading

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Evonik’s fundamental strengths come at a full price

The listing of the speciality chemicals company marks the largest German IPO since 2007. Evonik supplies compounds for an array of uses from biodiesel and chicken feed to Plexiglas. It has a solid sales and profit record – but a share price at the rich end of fair value.

For once, Evonik was favoured by fortune. On the eve of its fourth attempt to list on the German stock exchange, Borussia Dortmund, the soccer club sponsored by the speciality chemical group, thrashed Real Madrid 4-1 in the Champions League semi-final. The morning after, Evonik’s stock market debut was also successful, if less demonstrable.

With annual sales of 13.6 billion euros, Evonik is one of the world’s leading companies in the sector. Its diverse product range encompasses additives that go into coatings for pills to compounds deployed in car tyres, batteries and wind turbines. Every fourth nappy in the world uses Evonik’s super-absorbent material, while its amino-acids help feed 45 billion chickens a year. Continue reading

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German push to green power is brave but risky

Europe’s industrial leader wants to wean itself off nuclear power and fossil fuels, so Germany will become the world’s test laboratory for renewable energy. The policy is farsighted, but in urgent need of more German efficiency to keep costs under control.

When Germans embark on an engineering project, they usually get it done properly. The country must hope that this proves true for the biggest technical challenge the nation has taken on in generations: revamping the entire energy system. Phasing out nuclear power by 2022 is the relatively easy part. The real challenge is to get rid of fossil fuels almost completely by 2050.

“Energiewende” (energy transition) enjoys broad support in Germany. Despite some pitfalls, it is a brave and farsighted endeavour that the world should watch closely. So far, it seems to be on track. In 2012 the share of power generation from renewable sources jumped to 23 percent, from 20 percent in 2011. The government’s intermediate goal of at least 35 percent by 2020 may even be met prematurely. Continue reading

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German women lose board battle. Maybe not the war

Angela Merkel narrowly stifled a mutiny among MPs who wanted to force women quotas on corporate boards. She had to promise a softer reform in return. The fight against quotas is as desperate in Germany as it is in the rest of Europe. Companies should adjust to that reality.

In the banking industry, the Basel III requirements are to be fully implemented in 2018, yet investors and banks seem to behave as if they are already in full swing. Listed European companies would be well advised to do the same regarding the presence of women on their boards – and act before pan-European quotas come into effect, which is only a matter of time. Continue reading

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RTL is a gamble on the future of old-fashioned TV

Bertelsmann is reducing its exposure to TV by selling a chunk of RTL. The German broadcaster seems well-placed to deal with the status quo, but the longer term prospects are less clear. Internet distribution channels present free-to-air terrestrial TV huge headaches.

The rise of the Internet has already forced change in the way the music industry and the print media do business. Television could be next in line. New media consumption patterns, as well as fierce competition for advertising revenue from Google, among others, are likely to shake up traditional business models. Continue reading

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BMW, VW and Daimler: similar and unequal

The leading German carmakers have ignored the most severe crisis of the European auto market in decades. After record results, they reckon they can cope with a worsening environment. Yet there are differences between them – which markets only partly appreciate.

At 383 billion euros, the joint annual revenue of Volkswagen, Daimler and BMW is equivalent to the gross domestic product of Belgium. The three German carmakers have defied the European automobile crisis, dubbed “carmageddon” by JP Morgan. The big three booked record revenues in 2012, increased their sales in the first quarter and reckon they can cope with a worsening environment. They are in a league of their own. Continue reading

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German caution will make banking union stronger

 Germany’s finance minister says that a pan-European bank resolution scheme requires changing the EU treaty. This is less an attempt to delay the banking union than a statement of fact. It does not impact the common bank supervisor, nor direct recapitalisation through the ESM.

 German Finance Minister Wolfgang Schaeuble is Europe’s leading doom monger, regularly throwing cold water on ideas or suggestions to amend the way the euro zone does business. He seemed to live up to his reputation over the weekend by pointing out that full European banking union, including a resolution scheme, would necessitate changes in the EU’s founding treaties. Continue reading

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