MacroScope

from Dave Graham:

Is the German economic recovery a stitch-up to fool voters?

As if by magic, industry has become all upbeat about the prospects for the German economy – just in case anyone had the impression companies were about to start firing workers en masse after an upcoming federal election.

This was the tone of a German newspaper editorial this week which said “what a coincidence” it was that sentiment had shot up in the weeks before the Sept. 27 vote.

“Some pronouncements give rise to suspicion that interest groups are trying to pacify the electorate ahead of the ballot box,” the Neue Westfälische daily wrote. “The motto seems to be: don’t draw any more conclusions from the crisis, it really wasn’t that bad after all.”

Just two months ago, a number of leading think tanks said a forecast by Chancellor Angela Merkel’s government that the economy would contract by six percent this year was not pessimistic enough.

Now surveys show German business morale is now at its highest level in nearly a year, financial market analysts’ expectations for the economy have climbed to a 40-month peak, and an increasing number of bank economists have forecast Germany will bounce back from the crisis strongly next year.

Long shot ricochets in Steinbrueck’s quest for legacy

As the German election approaches and with it a chance he may not hold onto his job, Finance Minister Peer Steinbrueck took a long shot this week to try and boost his legacy as the man who took on the tax dodgers and won. While some of the new rules he proposed in a now trademark campaign against tax fraud failed to pass, the 62-year-old Social Democrat can only have boosted his popularity with voters and upped his chances of holding onto the Finance portfolio after the September 27 vote.

The idea was to give the Finance Ministry a “free hand” in drawing up its own list of countries and jurisdictions it deems uncooperative in efforts to crack down on tax evasion. Finance would thus have a bigger stick to wield as it signs new bi-lateral tax agreements next year, since the threat of sanctions on operations in Germany would have been immediate and easier to execute without the hurdle of consensus in Berlin. Or so the thinking went.

The proposal managed to stand its ground for a day. After supporting the plan on Monday, the Finance Ministry was forced to retreat under a hail of criticism from business lobbies, and when cabinet outlined its new procedures on Wednesday, it was clear that any future sanctions decisions will also have to be agreed by the Foreign and Economy ministries.

Death not an option for German pension debate

It may not be legislation, but a recently passed “pension guarantee” has re-kindled debate over a pillar of Germany’s welfare state – the notion of “inter-generational justice”.

The agreement, which basically calls for nationally funded retirement benefits to be locked in at current levels for all eternity, has not gone down as smoothly as its sponsors would have liked, since many nowadays see the country’s sagging birth rate as a sign coming generations will struggle to support their predecessors in old age. Two years ago when elections were far off, the government headed in a different direction, deciding to gradually expand the retirement age to 67 from 65 in order to offset both the birth rate and rising life expectancy.

While the agreement had already been supported by both parties in the awkward left/right governing coalition, some policymakers cried hypocrisy last week when it passed a final hurdle in parliament.