Good morning dear readers,
“hard monetary policy” has become a rather flexible term. What does it mean to be tough in view of an inflation rate of 9.1 percent in the euro area recently? The majority of the financial markets expect the European Central Bank (ECB) to raise the key interest rate by 0.75 percentage points to 1.25 percent on Thursday.
Plus 0.75 percent – that would be the largest rate hike in the history of the central bank. And it would only mean that bank deposits at the ECB would be devalued a little more slowly than before due to inflation. In real terms, i.e. after deducting inflation, the ECB interest rates are still around minus eight percent.
What does it do to a society in the long run if spending money is more worthwhile than saving? When debts go away on their own if you don’t pay them back long enough?
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This question is likely to occupy entire conferences of economic and social psychologists in the years to come. My guess: The uninhibited consumption of luxury at the top end of society combined with a lack of investment in companies gives us a foretaste of what is to come.
The paradoxical situation: although capital is cheaper than ever in real terms, it is by no means always available for companies willing to invest. One indication of this is the Bundesbank’s quarterly Bank Lending Survey. In it, a majority of banks stated that they had tightened their lending guidelines for corporate loans.
The turnaround in credit conditions is even more noticeable: many banks have demanded higher credit margins and thus higher interest rates and more collateral from their corporate customers. Financial institutes gave the poorer economic prospects as the most important reason for the growing caution: company bankruptcies are becoming more likely, which increases the risk that loans will burst.
In fact, the number of bankruptcies in August was 26 percent up on the previous year, according to the Halle Institute for Economic Research (IWH). Important reason for the increased bankruptcy and recession risk: rising costs for energy and raw materials. More than 90 percent of industrial companies see this as a “strong” (58 percent) or “existential” challenge (34 percent). These are the results of a survey by the Federation of German Industries.
Would you like indicators for the state of emergency? German industry will pay a wholesale gas price for 2023 that is eight times higher than in the USA. Production in the chemical industry has fallen by ten percent since the beginning of the year.
Conclusion of Christoph Schmidt, President of the Leibniz Institute for Economic Research (RWI): “In view of the heavy burdens caused by the increased energy prices, the risk that we will fall into a recession in the winter half-year is actually considerable.”
Conclusion: It is now even questionable whether Germany’s economic output will return to the pre-Corona level of the end of 2019 for the first time this year, as initially assumed
Perhaps the energy crisis will be impressed by the EU Commission’s new five-point plan? The Handelsblatt learned in advance what is planned:
- Saving targets for electricity consumption at peak times. Automated industrial processes could be postponed to weekends or nights
- A profit cap for renewable energy providers in the electricity market.
- A special tax for oil and gas companies that are currently making high profits, such as Shell, Total and Eni. The Commission speaks of a “solidarity contribution”.
- Liquidity support for utilities based on the Uniper model. The Commission wants to change state aid law so that it becomes easier for member states to protect struggling suppliers.
- A price cap for Russian gas. However, since the interruption of Nord Stream 1, hardly any Russian natural gas has reached the EU anyway.
Before you sell your Shell shares: The proposals are to be discussed with the member states for the first time on Wednesday. And no relevant Commission draft has ever come out of these deliberations the way it went in.
(Photo: via REUTERS)
Where the EU needs five points, Liz Truss gets by with three. In line with the policy principle that is widespread in Great Britain that one should not bore the people with details, the country’s new prime minister announced her even shorter rescue plan for the United Kingdom in a short inaugural speech: First, boost economic growth with tax cuts, second, cut energy costs, third, the national health service NHS get going.
On Tuesday evening, Truss introduced the most important members of her cabinet. Deputy Prime Minister and Minister of Health will be long-time Truss confidante Thérèse Coffey.
The previous economics minister, Kwasi Kwarteng, will become the new finance minister. The Home Office takes over Suella Braverman. James Cleverly will be the new Secretary of State. Ben Wallace remains Secretary of Defense.
Jacob Rees-Mogg, leader of the right-wing party, is to become the new business secretary to do what a true British Conservative can do as easily as shuffle bridge cards: limit the unions’ right to strike.
And then there is Karl-Heinz Rummenigge, football idol of the boomer generation and until 14 months ago CEO of FC Bayern Munich. In an interview with the “Süddeutsche Zeitung”, Rummenigge defends the thesis that fits the world situation, that you can only really learn from defeats: “For example, I remembered this damn final against Chelsea in 2012, of which I still don’t understand how we could lose that, watched it every year for ten years.”
I wish you a day where you learn from failure. It doesn’t necessarily have to be your own.
Best regards
Her
Christian Rickens
Editor-in-Chief Handelsblatt
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