Inflation fear shouldn’t constrain monetary policy

Central banks have more room to manoeuvre than inflation hawks think. Even temporarily excessive economic stimulus is unlikely to derail price stability, as a new IMF analysis suggests. Monetary policymakers should use this leeway – especially in the euro zone.

A nagging fear of out-of-control inflation is deeply engrained in the psyche of any proper central banker. For the time being though, they can relax. Current monetary policymakers enjoy more room to manoeuvre than past experiences – and today’s inflation hawks – suggest. Continue reading

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German eurosceptics strong enough to nudge Merkel

A new anti-euro party is unlikely to make it into parliament in the 2013 elections, but its appeal will make it harder for the chancellor to appear too generous to troubled periphery nations, despite her popularity. The rest of the euro zone should understand her predicament.

The biggest surprise about Germany’s fledgling anti-euro party is that it took so long to emerge. Many Germans object to the bailouts for stricken euro zone members, are haunted by fears of inflation and just don’t trust the euro. But unlike in Finland and the Netherlands, German eurosceptic voters have had no place to turn to, as all the respectable parties are staunchly pro-European. Continue reading


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German minimum wage talk mostly symbolic for now

The country is one of the few in the EU without a minimum wage. Political parties agree it’s time to end that anomaly. The macroeconomic impact of the reform will be muted. Yet the debate suggests there’s a limit to Berlin’s appetite for deregulated labour markets.

Germany has been urging southern European countries to deregulate their labour markets. Meanwhile, it seems to be headed in the opposite direction. While the technical details are still up for debate, there is a consensus among all political parties that Germany needs a minimum wage at last.

Such a move would break a longstanding policy of keeping the government out of wage setting. The right to free collective bargaining is enshrined in the constitution. Even the social democrats of the SPD party and union leaders opposed government intervention in matters related to wages and pay. Continue reading

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Bertelsmann faces 50 shades of digital challenges

The success of the “50 Shades” erotic trilogy boosted Bertelsmann’s 2012 profit. Yet the media giant’s successful book publisher hides structural weaknesses. Many of the company’s markets are shrinking, and its many attempts to adjust to the digital age haven’t been convincing.

The fictitious adventures of Anastasia Steele and Christian Grey, the protagonists of the “50 Shades” erotic trilogy may have spared Bertelsmann’s management some nasty questions on declining profitability. The books’ global success helped boost operating profit at the German media group’s publishing unit, Random House, by 76 percent to a record of 325 million euros – 19 percent of group profit on only 13 percent of its revenue. Continue reading

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Benefits of German 2003 big bang are overstated

Germany started liberalising its labour market 10 years ago. That brought some welcome results, but the Hartz reforms’ impact on Germany’s economic resurgence tend to be overestimated. Wage restraint and a global demand boom for capital goods have been more important.

Ten years ago, then-German Chancellor Gerhard Schroeder outlined what appeared like a bold programme of labour market liberalisation. It included an overhaul of the way the German labour agency works and severe cuts in benefits for the long-term unemployed. Continue reading

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VW’s mega-profit hides risky governance weak spot

The carmaker’s 25 bln euros of pre-tax earnings are the highest ever for a listed German company. Despite a dismal European car market, current prospects are bright. But in the long term, politically charged and family-dominated governance is a source of vulnerability.

Volkswagen is defying gravity. Even though the European car market has been in terrible shape for two years, VW’s 25.5 billion euros of 2012 pre-tax profit was the highest ever for a listed German company. Continue reading

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Market dislike of Axel Springer is over the top

The German media group spooked shareholders with news that the restructuring of its print unit and further digital investments will eat into 2013 profit. The fears look overdone. Springer is coping with the digital transition much better than most of its peers.

Axel Springer, Europe’s largest newspaper group, spooked markets on Wednesday (6 March). It expects earnings before interest, tax and depreciation to decrease by up to 9 percent this year. Analysts polled by Reuters were expecting an increase in profitability. Subsequently, Axel Springer’s shares went down by more than 6 percent. Given the company’s solid fundamentals and a successful transition into digital businesses, the reaction smacks of myopia. Continue reading

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German pay hikes good news for Europe if moderate

Wages are rising, within reason. Unions are not in a bellicose mood, and stick to the pragmatic approach that has served the country’s labour market well. This is a welcome development, not only for German workers but also for the rest of Europe.

German workers fighting for higher pay don’t lack supporters. Economists and politicians across Europe would like to see them spend more, and in return help take the continent’s economy out of the doldrums. As things stand, unions aren’t wildly enthusiastic about excessive pay hikes, and settle for quite reasonable ones. Continue reading

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How economics became the hijacked science

Mainstream economics has been hijacked by vested interests and turned into an ideological weapon, Norbert Haering and Niall Douglas claim in “Economists and the Powerful”. Their case against the profession isn’t iron-clad, but it’s definitely thought-provoking.

There’s no lack of books on the shortcomings of mainstream economics. “Economists and the Powerful”, by Norbert Haering, a German financial journalist, and Niall Douglas, an Irish IT consultant, stands out from the crowd.

The authors do not only describe the dismal science’s many flaws; they try to explain why the discipline went wrong. Their claim is that the field has become the ideological servant of vested interests: “a tool for the powerful to enrich themselves at the expense of others” and a “weapon for achieving U.S. hegemony at the cost of everything else”. Continue reading


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