China capital curbs reflect buyer’s remorse over market reforms

Last year the reformist head of China’s central bank convinced his Communist party bosses to give market forces a bigger say in setting the renminbi’s daily “reference rate” against the US dollar. In return, Zhou Xiaochuan assured his more conservative party colleagues that the redback would finally secure coveted recognition as an official reserve currency […]

Continue Reading


Carney: UK is ‘investment banker for Europe’

The governor of the Bank of England has repeated his calls for a “smooth and orderly” UK exit from the EU, saying that a transition out of the bloc will happen, it was just a case of “when and how”. Responding to the BoE’s latest bank stress tests, where lenders overall emerged with more resilient […]

Continue Reading


China stock market unfazed by falling renminbi

China’s renminbi slump has companies and individuals alike scrambling to move capital overseas, but it has not damped the enthusiasm of China’s equity investors. The Shanghai Composite, which tracks stocks on the mainland’s biggest exchange, has been gradually rising since May. That is the opposite of what happened in August 2015 after China’s surprise renminbi […]

Continue Reading

Capital Markets

Mnuchin expected to be Trump’s Treasury secretary

Donald Trump has chosen Steven Mnuchin as his Treasury secretary, US media outlets reported on Tuesday, positioning the former Goldman Sachs banker to be the latest Wall Street veteran to receive a top administration post. Mr Mnuchin chairs both Dune Capital Management and Dune Entertainment Partners and has been a longtime business associate of Mr […]

Continue Reading


Financial system more vulnerable after Trump victory, says BoE

The US election outcome has “reinforced existing vulnerabilities” in the financial system, the Bank of England has warned, adding that the outlook for financial stability in the UK remains challenging. The BoE said on Wednesday that vulnerabilities that were already considered “elevated” have worsened since its last report on financial stability in July, in the […]

Continue Reading

Categorized | Economy

Stimulus would serve Germany’s interest

Posted on September 20, 2016

German finance minister Wolfgang Schauble©EPA

Finance minister Wolfgang Schäuble is intent on running a balanced budget

For years, Germany’s government has resisted calls to end its ideological attachment to thrift and do more to support domestic demand. At last, there are signs that the eurozone’s largest economy is rebalancing: growth in exports has slackened and consumer spending is rising at the fastest rate in almost 20 years. This is a welcome development, yet the domestic upswing owes little to government policy. There is far more Berlin could do to boost demand — to the mutual benefit of the eurozone and its own voters.

Consumers have considerable inducement to head out shopping. After decades of pay restraint, in which earnings increased at a far slower pace than productivity, workers are now enjoying wage growth above inflation (although union negotiators could still be more ambitious in areas of high employment). The fall in oil prices has helped household budgets. People do not need to dig into their savings in order to spend more. Employment has been rising, with the number of people in work the highest since reunification — and this has lifted consumer confidence, according to a recent survey, to its highest level since 2001.

    There has also been a modest boost from fiscal policy. Although finance minister Wolfgang Schäuble remains intent on running a balanced budget
    , rising tax revenues have made this commitment to the “black zero” compatible with higher refugee-related spending, an increase in social transfers and modest tax cuts.

    However, Germany’s consumption boom owes far more to the stimulus delivered by the European Central Bank than it does to domestic policy. German savers may decry the ECB’s policy of negative interest rates, but a dislike of eurozone monetary policy does not stop people taking advantage of cheap mortgage rates. House prices are rising, as is associated spending on furniture and durable goods.

    German politicians have also been loath to recognise the degree to which their pursuit of fiscal prudence has been aided by the ECB’s action to drive down the cost of public borrowing. Rather than carping at the ECB, they would do
    better to use the fiscal space the central bank has helped to create.

    Mr Schäuble has taken a step in this direction, saying he sees scope for some €15bn of tax cuts, aimed at people on low and middle incomes, after next autumn’s elections.

    FT View

    Rethink asylum rules for age of mass movement

    Refugees queue in order to receive some goods at a makeshift camp for migrants and refugees at the Greek-Macedonian border near the village of Idomeni on April 21, 2016. About 50,000 people remain stranded in Greece since the closure of the migrant route through the Balkans in February. Over 10,000 of them are stuck in a slum-like camp at Idomeni on the border with Macedonia. / AFP / JOE KLAMAR (Photo credit should read JOE KLAMAR/AFP/Getty Images)

    May’s call for reform of postwar policy is sensible but insufficient

    This seems a strange inversion of the pressure most governments feel to cut taxes in the run-up to elections, and tighten the purse-strings afterwards. Both German politicians and the German public believe in the need to practise the austerity that has been imposed on the EU’s indebted periphery. Yet other than the self-imposed constraint of running a surplus, there is little reason to delay a fiscal stimulus. It is true that German voters do not always support tax cuts — but it is hard to imagine them opposing a drive to invest in public infrastructure.

    Again, the government has already taken some steps in this direction, publishing plans for long-term investment in transport infrastructure. But it has not committed funds. This is short-sighted. Despite media reports of crumbling bridges and ageing railways, German infrastructure remains a huge national strength, but it will remain so only if the money is made available to maintain it. Moreover, there are other areas in which Germany risks falling behind — it is lagging, for example, in internet connection speed and other aspects of digital infrastructure.

    A well-directed fiscal stimulus would not only aid the eurozone recovery: more important, it would be in Germany’s best interests.