Good morning dear readers,
The situation in which the head of the European Central Bank (ECB) Christine Lagarde found herself on Thursday evening is commonly described as a dilemma.
Their role was to announce changes in the policy rate, which sets the direction of interest rates across the euro area. Not an easy task, because the high interest rates had recently caused massive difficulties on the financial markets.
On the one hand, Lagarde should have postponed the rate hike in order to calm the nervous financial markets. But with these now on the brink of a nervous breakdown, a postponed rate hike would probably have caused even more unrest. Because then speculation might have arisen as to whether the central bank knows more about the critical state of the banks than is already priced into the markets.
Conclusion: Lagarde had no choice but to pretend normality and raise interest rates in the euro area by 50 basis points to 3.5 percent as planned.
Lagarde’s good face to the crazy game on the financial markets illustrates the current tense situation. After the American Silicon Valley Bank went bankrupt a week ago, Credit Suisse caused a sensation on Wednesday. The major Swiss bank announced that it would have to borrow up to CHF 50 billion from the Swiss National Bank.
Late on Thursday evening it was also announced that California’s First Republic Bank would also receive support of 30 billion dollars – not from the central bank, but from eleven major private banks. This is apparently intended to prevent another bankruptcy.
The measures are also a struggle for capital. Because since the Silicon Valley Bank slipped into insolvency, a market value of 1.6 trillion US dollars has already been destroyed in the USA.
Are the developments heralding a new financial crisis? A whole team of Handelsblatt editors in Düsseldorf, Frankfurt, Berlin, New York and San Francisco investigated this question.
The result is a large report on the areas in the financial system that have faltered particularly badly with the turnaround in interest rates. It’s not just the banks that are affected. The effects are also massive in the technology sector and on the real estate market.
The co-head of Charge Ventures, a venture capitalist that has invested in around 60 start-ups, remembers last weekend as a kind of “near-death experience”. For investors like him, the prospects for the future, which were bright until recently, have clouded over significantly with the departure from cheap money.
And the central banks that set the price of money? They remain caught between their job of fighting inflation and the ever-present fear of what further rising interest rates could possibly do.
(Photo: Jonas Holthaus for Handelsblatt)
Chancellor Olaf Scholz (SPD) is not known for scaremongering. On the contrary, the core of the Prime Minister’s brand includes Hanseatic virtues such as calm and composure.
Not bad qualities in times of troubled markets. In the big Handelsblatt interview, former Federal Finance Minister Scholz reassured those who see another major crisis looming: “I don’t see the danger. The monetary system is no longer as fragile as it was before the financial crisis.”
And the chancellor brought more good news with him: “We could be facing a major growth and investment phase, as we know it from the 1950s and 1960s.”
This boom would be triggered by the transformation to a climate-neutral economy by 2045. The Chancellor promises that the Bundestag will introduce the necessary laws to initiate this boom phase. But he also holds companies accountable, which should recognize their own “opportunities for growth”. Read the full interview with the Chancellor here.
“The perfect old-age provision” – this was the slogan used by the building society of the savings banks LBS to advertise the so-called Riester pension. But the model of privately financed pensions with a state allowance, which was introduced a little over 20 years ago, has been the subject of criticism for some time. For the twentieth anniversary of the model, the Federal Association of Consumer Centers even called for the Riester pension to be stopped, since contracts are often “expensive and unprofitable”.
Now the providers of the state subsidized pension had to report to their customers again about a catastrophic year. Recently concluded contracts posted a drop of almost 50 percent in the past year.
However, it is not advisable to get out of the frustration now, because then the losses will materialize and the savers will have to pay back their subsidy. The Handelsblatt financial investment experts Anke Rezmer and Susanne Schier have analyzed where the problems lie and what needs to be done now.
The French also have a problem with their pension. There, the dispute over the restructuring of old-age provision is now taking on grotesque features. Garbage piles up in the streets of Paris as garbage collectors protest President Emmanuel Macron’s reform plans and go on strike. And in the National Assembly, Prime Minister Élisabeth Borne was prevented from speaking: members of the Left Alliance sang the national anthem for minutes.
And despite – or perhaps because of – all this chaos, the President is now pushing the reform to raise the statutory retirement age to 64 years past Parliament. A constitutional trick allows him to bypass the vote of the deputies.
In doing so, Macron drew the ire of the opposition as well as the trade unions. The latter immediately announced that they would continue the massive strikes and protests. Uncomfortable times are therefore likely to come to the country – because if the French are particularly good at one thing, it is going on strike.
I wish you a good day in comfortable work clothes.
Best regards
Her
Teresa Stiens
Editor of the Handelsblatt
