clear
Friday January 19th, 2018 9:58PM

Investors cheer German deal, but some bemoan lack of vision

By The Associated Press

FRANKFURT, Germany (AP) — Hopes for a new government in Germany sent the euro and markets higher Friday on relief that the Europe's biggest economy might soon get stable leadership. But it left some economists and business lobbyists saying it offers too little to support the country's prosperity over the longer term.

Friday's tentative deal to open formal coalition talks would see Chancellor Angela Merkel's Christian Democrats, the allied Bavaria-only Christian Social Union and the center-left Social Democrats continue their coalition. The agreement follows the collapse of a proposal for Merkel's party to govern along with the Greens and pro-business Free Democrats.

One primary reason for investors' cheer — which saw the euro jump to a three-year high of $1.2156 against the dollar — was simply relief that the country's political situation was being sorted out, almost four months after the Sept. 24 election.

It seems likely that Merkel, a known quantity for investors and a firmly pro-European politician, will remain chancellor.

Also, the deal avoids the risk of another election, which would have raised the prospect of more gains by populist parties such as the far-right AfD. Analysts have singled out the rise in populist, euroskeptic parties in many countries as one of the key risks to growth and markets in Europe. Several such parties want to weaken the euro ties or break up the currency bloc altogether, with uncertain consequences for the region's economies.

"The agreement is overdue," said Dieter Kempf, president of the Federation of Germany Industry lobby. "Germany urgently needs a government capable of taking action."

The most important points in the agreement between Merkel's conservatives and the Social Democrats include a promise not to increase taxes, some flexibility on reaching a commitment to cut greenhouse gas emissions by 40 percent by 2020, and a willingness to work with France on steps to fix chronic flaws in the shared euro currency.

Friday's deal was only an agreement to open full-fledged coalition talks that should produce a more detailed policy map for the next government. A deal must also be approved by the Social Democratic rank and file, who have been skeptical about joining with the conservatives again after suffering substantial losses in the election.

The plan has some increases in social spending, such as a 25 euro per month rise in child benefit, along with a decrease in the so-called solidarity tax imposed to help the former East Germany catch up with the west.

Kempf welcomed the flexible approach to cutting greenhouse emissions, saying that "there are grounds for hope that technical and economic realities will be more clearly recognized."

He also welcomes the promise not to raise taxes, yet said that the 28-page document was short on specifics: "What is lacking is a vision of in what direction a future government will shape our country." He said the proposals represented a "minimum" of possible steps and urged more definite proposals on areas such as the digital economy.

The deal includes a strong statement in favor of strengthening the European Union, including steps to make the eurozone currency union function better. That could include transforming the current European Stability Mechanism bailout fund into a full-fledged European Monetary Fund to help backstop crisis-hit countries. There was also mention of targeted investment that could "serve as the point of departure for a eurozone investment fund." The euro currency's lack of a central fiscal pot to even out recessions has been identified as one of its weaknesses. The currency union was threatened with breakup in 2011-2012 during a crisis over too much debt in several member countries. Germany has resisted fiscal sharing out of concern that it would wind up funding other countries on a long-term basis.

There was no mention of other fixes such as EU-wide deposit insurance or efforts to promote cross-border investment holdings, dubbed capital markets union.

Still, continuity has a certain appeal in a country where the economy grew 2.2 percent last year and unemployment is low at 3.6 percent. Far-reaching reforms that from 2004 under former Social Democratic Chancellor Gerhard Schroeder that lowered business costs are often credited for boosting the country's economic performance.

Clemens Fuest, head of the Ifo research institute in Munich, sharply criticized the agreement for containing too much in additional social outlays and little in the way of tax reductions. "This government program will bring a long term expansion of the state share of economic output, that is, higher taxes and more spending."

Carsten Brzeski, chief economist for Germany at ING, said that "as regards economic policies, the agreement is a continuation of the well-known policies of the last few years: cautious steps forward, rather than any visionary experiments."

  • Associated Categories: Associated Press (AP), AP Business, AP Business - Economy, AP Business - Financial Markets
© Copyright 2018 AccessWDUN.com
All rights reserved. This material may not be published, broadcast, rewritten, or redistributed without permission.
Lawmakers to Justice Department: Keep online gambling legal
Federal lawmakers from both parties in New Jersey are asking the U.S. Justice Department to keep internet gambling legal
12:29PM ( 18 minutes ago )
Josh Donaldson agrees to $23M, 1-year deal with Blue Jays
Third baseman Josh Donaldson and the Toronto Blue Jays agreed to a $23 million, one-year contact, a $6 million raise for the 2015 AL MVP.
12:25PM ( 22 minutes ago )
Mississippi Burnings KKK leader Killen dies in prison at 92
State: Edgar Ray Killen, convicted in 1964 'Mississippi Burning' slayings of 3 civil rights workers, dies in prison.State: Edgar Ray Killen, convicted in 1964 'Mississippi Burning' slayings of 3 civil rights workers, dies in prison
12:25PM ( 23 minutes ago )
Associated Press (AP)
Doreen Tracey, an original Disney Mouseketeer, dies at 74
Doreen Tracey, a child star who played one of the original cute-as-a-button Mouseketeers on "The Mickey Mouse Club" in the 1950s, has died at 74
12:09PM ( 38 minutes ago )
Officials: Iran deal survives, Trump to waive sanctions
U.S. officials say President Donald Trump will extend waivers on Iran sanctions, keeping the landmark 2015 nuclear deal alive for at least another several months despite his past vows to scuttle the deal
12:04PM ( 43 minutes ago )
Mudslides claim couple married 50 years, real estate agent
A couple married for more than 50 years and had just celebrated his 89th birthday are among victims of California mudslides
11:52AM ( 56 minutes ago )
AP Business
Inflation watch: December consumer prices up just 0.1 pct
US consumer prices up tiny 0.1 percent in December as energy prices fell sharp 1.2 percent
9:22AM ( 3 hours ago )
Euro surges amid German government hopes; stocks solid
The euro surged to three-year highs against the dollar Friday amid signs that the European Central Bank is readying to rein in its stimulus sooner than many in the financial markets had been predicting
9:08AM ( 3 hours ago )
China's trade with North Korea plunges as sanctions tighten
China's trade with North Korea is plunging as U.N. sanctions imposed over its nuclear and missile development tightened
4:37AM ( 8 hours ago )
AP Business - Economy
Digital currencies dip as South Korea considers trading ban
The price of bitcoin falls and another popular currency, ethereum, wobbles after South Korea, a hotbed for currencies like bitcoin, said it was weighing a trading ban
1:41PM ( 23 hours ago )
European Central Bank looks to review stimulus duration
Top officials at the European Central Bank at their last meeting remained wary of prematurely signaling the next steps in an expected exit from their monetary stimulus polices
11:39AM ( 1 day ago )
European Central Bank close to revisiting stimulus program
Top officials at the European Central Bank at their last meeting remained wary of prematurely signaling the next steps in an expected exit from their monetary stimulus polices
9:38AM ( 1 day ago )
AP Business - Financial Markets
Lawmakers to Justice Department: Keep online gambling legal
Federal lawmakers from both parties in New Jersey are asking the U.S. Justice Department to keep internet gambling legal
12:29PM ( 18 minutes ago )
Josh Donaldson agrees to $23M, 1-year deal with Blue Jays
Third baseman Josh Donaldson and the Toronto Blue Jays agreed to a $23 million, one-year contact, a $6 million raise for the 2015 AL MVP.
12:25PM ( 22 minutes ago )
Mississippi Burnings KKK leader Killen dies in prison at 92
State: Edgar Ray Killen, convicted in 1964 'Mississippi Burning' slayings of 3 civil rights workers, dies in prison.State: Edgar Ray Killen, convicted in 1964 'Mississippi Burning' slayings of 3 civil rights workers, dies in prison
12:25PM ( 23 minutes ago )
Has flu season, in full swing, reached its height?
Flu is blanketing the US, but officials think it may decline soon
12:15PM ( 32 minutes ago )
Wild swings occur in numbers of California mudslide missing
The number of missing from a California mudslide is constantly changing _ and not just because people are being found
12:12PM ( 36 minutes ago )