Bundesbank and German government about to fight real estate bubble

Dear reader,

according to media reports German government along with Bundesbank and BaFin will fight possible bubbles in German real estate sector by having quarter yearly meetings upon this issue and they will report to German legislative body, the Bundestag afterwards.

A cabinet meeting will be held on May 2nd to negotiate a new law that will provide from 2014 onwards some measures to counter a possible hike in  mortgages provided to individuals by German banks. (There are reports like this one, suggesting that there is a real estate boom in Germany)

Mr Weidmann, president of the Bundesbank renewed during a speech held in New York a warning about the dangers of a too loose monetary policy by the ECB and announced:  "we will apply other instruments to be able to handle this phenomena."

Unlike the path described here in the opinion section to do it the 'fiscal way' (by using tax punishment for making certain unwanted profits unattractive), German government choses for enhancing the capital requirements for granting mortgages.

The report goes on:
"Es wäre ein Werkzeug zur Bekämpfung von Immobilienpreisblasen gefunden, das spezifischer wirkt und feiner dosierbar ist als der Leitzins der Zentralbank."
"A tool to fight the real estate pricing bubbles would have been found, which is more specific and allows finer tuning as the base rate of the central bank"

which sounds pretty much like this.

So when the author here had a first glimpse at this New York Times' article and its paragraph:

>>"Let us say that monetary policy becomes too expansionary for Germany,”Dr. Weidmann told the Economic Club, making it clear that it is not German national sovereignty that needs to be sacrificed. “If this happens,” he said, “Germany has to deal with this using other, national instruments.” He did not specify what those instruments would be.<<

he knew by and large what instruments Mr Weidmann had in mind.


References:
Germany's fight against new bubbles (risknet) (ger)
Global Economic Outlook – What is the best policy mix? Speech at the Economic Club of New York 
In Europe, a Marriage Shows Signs of Fraying (NYTimes)
Weidmann: Central bank can't fix euro crisis with loose money, says deficits must come down
KantoosEconomics asks good questions
[update] 
May 3rd 2012 Gesetzentwurf: Finanzaufsicht wird gestärkt 
May 3rd 2012 UPDATE: Bundeskabinett will Reform der Finanzaufsicht
[/update]

last upd.: May 3rd 2055 CET

The Netherlands on its way to elections

Dear reader,

it was never intended to get into one countries' politics, and especially not of The Netherlands, the country where the author has the privilege to vote more often than he would like to. (because most recent cabinets didn't last until the end of their legislature) Although he was bored more or less with politics of the small Netherlands and he very closely followed those other political events taking place in UK, Germany, USA , Russia and others with some more degree of 'aw', it seemed necessary to give some perspective of Dutch politics after Mr Wilders made his move, the budget negotiations failed, the cabinet fell and new elections were pronounced. So suddenly there was the Netherlands in the focus of world's attention and so it was decided to help understand a bit more what was happening in the low lands with their windmills and wooden shoes.

Even when restricting on the economy of the EU and the eurozone it wasn't possible not to give some background on the political situation in the Netherlands, since there was the all important budget 2013 on the brink of not being agreed upon, and therefore both the international markets and the other members of the eurozone, and the EU as a whole started to get nervous about this (maybe later seen as historic) failure of the last coalition to get things done.

The Netherlands: What's next ?

Dear reader,

the Dutch cabinet has announced its resignation.

How it happened has been described already here and although some Dutch economists are even celebrating this event as a 'victory for Keynesians', one must be keeping a watchful eye towards politicians and their reasoning given in public.

Wilders and his party
Mr Wilders has said, that he was acting on behalf of Dutch pensioners in danger of getting run over by austerity measures 'dictated by Brussels'. As some political observers already noted, those rules 'from Brussels' are actually based on Dutch proposals going back to the 1990s when the 'Maastricht guidelines' were put into force. And also later throughout several Dutch cabinets, the deficit and debt to GDP guidelines were always defended vigorously by the Dutch. One reason that some European commentators are now feeling some 'Schadenfreude' about the fact, the now the Dutch government also feels the heat of 'Brussels' (the EU). As Dutch public TV NOS points out, also Mr Wilders was de facto connected to latest Dutch cabinet under PM Rutte and he also supported tight rules concerning those 'Maastricht criteria' for others. The author here will later give a few remarks concerning those guidelines and also upon the piece of professor Engelen, but first he likes to remind the reader, that many, if not all, politicians have to bend the truth in order to remain the 'good guy' they want to be perceived by their electorate.

Some more info on the breakdown of Dutch cabinet

Dear reader,

as so many times before, the eurozone creates its dramas sometimes as unpredictable as the announcement of a 'Greek referendum' last year by then Greek PM Papadreou.

Now the events were/are dictated by well known Dutch politician Geert Wilders, chairman and establisher of Dutch PVV party. PVV can be translated as 'party for freedom'  .

The party and the politician well known of course for its rather radical positions towards Muslims, Islam, Koran, immigrants in general. (latest controversy: Internet website to name & shame all possibly negative behavior of Eastern European citizens like Poles, Bulgarians etc)  
Less well known is the PVV's somewhat 'leftist' approach concerning pensioners and the Dutch welfare state. Nevertheless Mr Wilders was before his 'career' as party leader of the PVV, member of parliament for the VVD .

This explains perhaps why Mr Rutte as designated PM back in 2010 decided to try a regular coalition with the CDA and get both parties 'tolerated' by Mr Wilders and his parliamentary group. Some items on the political agenda by Mr Rutte was against the interests of PVV and so he and the CDA party had to rely on some opposition parties sometimes for a majority needed for getting legislation through parliament. So, in fact Dutch government was a minority government all along, depending for most but not all projects on Mr Wilders and his group.

Mr Wilders political style aroused some controversy in Dutch society (in Brussels and abroad in general), by using provocations in order to get more support from certain groups of the Dutch population. He got it mostly right, looking back at the opinion polls being done shortly afterwards where he and his group did rise regularly after such provocations. At some time the PVV seemed to be the leading party of the Netherlands, but latest opinion polls show that many of his followers changed their minds again, some of them would vote for VVD now. So Mr Wilders was facing decline in opinion polls, but more troubling for him was a defection of one prominent member of his parliamentary group, Mr Brinkman. Hero Brinkman recently put an ultimatum to Mr Wilders, who , so he alleged, was running the party like a dictator, not interested in democratic principles. Mr Brinkman was coincidentally the one vote needed for the government of Mr Rutte to have a (small) majority in parliament. The timing for defection and establishing a faction of his own by Mr Brinkman couldn't have been chosen better: in the middle of the long lasting negotiations in the 'Catshuis' between all three parties in order to reach an agreement on strict austerity measures needed to put the Netherlands back on track concerning eurozone's deficit target of 3%. (Which was forecasted by CPB more in the direction of 4,6%)   

Handelsblatt: "ECB is the arsonist in the crisis"

Dear reader,

some articles just spark an immediate reaction, although some others are still 'in the pipeline' of also to be published soon. This one published by Germany's well respected business newspaper Handelsblatt is such an article. Even more so because just a few days back the author here came the conclusion that the ECB is just the firefighter while other arsonists are setting the eurozone alight for a long time.

In this older blog post it was described how the ECB acted as the last institution standing between European citizens & businesses and also governments and the abyss. Since some people seem to have forgotten the immediate dangers the eurozone was facing end of November, beginning of December last year here is a reminder in the factual section of this blog.

It is somehow 'remarkable' how people seem to forget not only the dramatic events in Fall/Winter 2011, but also the many many steps which were leading to this final outcome of 'market refusal' to buy any sovereign debt from whatever European state and the massive capital outflows from the eurozone towards other safe havens around the globe. Forgotten the introduction of the common currency and the rather sudden (and not anticipated before) decision to let Greece enter the 'stability club'.

How just one blogger (Paul Krugman) can change the world

Dear reader,

@mathijsbouman just tweets a link to his latest piece (dut) on his latest change of mind, facing the epic crisis out of the vicious downward spiral in the south of Europe.

He stated 'The column I never thought i would write'. (Twitter Apr. 18th 2012 09:59 CET) In his column he confessed to be influenced by latest doomsday predictions from Paul Krugman like those in his post Europe's Economic Suicide (and possibly also Insane in Spain ) 

Thus Mathijs Bouman so far was not a fan of 'socialism' (governmental spending programs), but the shocking analysis of Paul Krugman did achieve a change of mind.
It's just now reaching the conscience of economists, that this current crisis is not just a matter of fiscal or monetary policy effecting one or more economies, but it is at a level much below the balance sheets of central banks or state budget calculations threatening the lives of individuals. It has become a matter of life and death for some European citizens , who feel the need of shooting themselves in front of parliaments (Greece) or setting themselves ablaze in front of a tax office (Italy). Where now some Greek chambers of commerce set up psychological help for their members in difficult financial situations in order to prevent mass suicides. 

Mr Krugman states that "it's getting harder and harder to believe that anything will get them to change course" (them= policy makers)

KantoosEconomics asks good questions

Dear reader,

while the author was busy compiling some new entries for the ongoing Target2 debate, he stumbled over a question asked by @KantoosEcon in a blog post already known:  Wie eine berechtigte Kritik an Target-2 aussähe

1.)

"Wie gelingt es, regionale Inflation einzudämmen, wenn sie nicht gerechtfertigt ist, aber dennoch entsteht? Zum Beispiel indem man einen kreditfinanzierten Boom begrenzt, und sei es durch die Erschwerung des Kreditzugangs oder gar durch die Aussetzung von Baugenehmigungen oder prohibitive Grunderwerbssteuern."

"How to successfully contain regional inflation, if it isn't justified, but arises nevertheless ? For instance by limiting a credit financed boom, and be it by limiting access to credits or even by delaying building permits or punishing real estate transfer taxes"

2.)

"Wie können wir zur regionalen Konjunkturunterstützung einen europäischen Fiskalfonds auflegen?"

"How can we initiate a European fiscal fund to stimulate regional economies ?"

1.)
Well, it was already explained here & here , that there are ways to circumvent the dilemma of the ECB, which is: to have their base lending rate at their disposal in order to increase when there are inflationary tendencies looming. The ECB has only a 'global weapon' to its disposal, where the 'ammunition' is targeted towards the eurozone as a whole and not to individual member states.

The idea of containing the real estate sector by taxation and permits isn't bad, since it would also direct the 'economic fine adjustment' to the individual states, which still have some flexibility. But it's not right to think just about Spain and their already imploded real estate bubble or Germany and their currently inflating bubble.
There are many more parts of economies which can show some inflation. The purpose of limiting lending to those 'emerging bubbles' can be served by putting pressure on the lending banks, not by 'broad base rates' imposed by the ECB, but by 'narrow profit taxation' (by the way also the instrument of choice to counter the often very slow, delayed  reactions to lower base rates by banks)

2.)
Well, that question has also been answered 'fiscally' before: by taxation or better lowering of taxation of profits made by investments in those countries which are currently in the doldrums. Or by playing it by tunneling funding through the EIB. (or Mr Draghi targets another 'Big Bertha' towards EIB (as was briefly discussed here in conjunction with EFSF) , which would not be against European law.) 

But it is not the instrument of choice, which would be to initiate privately financed infrastructure funds as a 'bazooka of the real economy' and by a coordinated European economic policy in general. So far most European politicians performed 'splendidly' by ignoring every other real opportunity offered to them. (As explained in detail in the end of Nov '11 while we were facing a dry up of state funding and a breakup of the eurozone in the main section of eurozoneremarks: 'Be Superman, not Clark Kent' eng & ger)

1+2) fiscal 'fine tuning' requires continued surveillance of ECB, regional central banks (Which shouldn't pose a big problem), recommendations to their local governments  and a willingness to comply in full by politicians and perhaps a common ground/commitment by incumbents and main opposition alike.  (Which could pose a big problem)

[update]

Dutch research institute CPB (@centraalpb) on Tobin tax:

"A VAT on financial services, a bank tax or a tax on financial activity would be more efficient the CPB says in a finding that was made by request of the cabinet."CPB: "Financial transaction tax not efficient" 

[/update]

The euro crisis: Which fundamental issues has Europe solved? (The Economist)

Goooooood mooooorning Merkonti

Dear reader,

don't worry... This is not aging Adrian Cronauer transferred from Saigon/Vietnam to AFN Europe.

It's just worth reminding that there is a globe still rotating, even without European politicians like Merkel, Sarkozy, Monti ("Merkonti" invented by @Katie_Martin_FX) being completely busy with rescue efforts of their Euro currency and EMU.

Just two articles found today:

Business / Economy Africa looks to China for financing

China becomes Russia's top trade partner in Jan-Feb

and remembering some other from recent past:
Russia plans 'Eurasian Union' on EU model
China, Japan to Back Direct Trade of Currencies
Russia, India to trade in local currencies in 3 years-banker
The Renminbi's Prospects as a Global Reserve Currency
China Is About To Take A HUGE Step Toward Internationalizing Its Currency
U.S. Faces New Challenge of Fewer Troops in Europe

Apr 8th Chinese, Japanese, ROK FMs meet on co-op
Apr 8th Scottish education vs Chinese education
Apr 8th Desperately seeking math and science majors 

combined with latest blog entry from @Wirtschaftswurm:  Wer kann sich das Öl noch leisten?  

The big question is:
What's the importance of Europe economically and even more so politically, even in the near future ?  Are we losing it completely on all fields, because our hands are tied behind the back, because a drowning swimmer can't serve as a bay watcher ? Is there any room left for maneuver, or are we not in fact completely tied down, because of a lack of vision is sold to the public as 'there is no alternative' ?

Imagine what would happen, if German exports to China and Russia will be substituted with a Sino-Russian trade exchange, probably joined by India and Japan ? 

Begging as a 'business model' ?

Update: A little reminder also what Helmut Schmidt envisioned:

Economists and medics

Dear reader,

while the authors reads with interest many pieces by fine economists, he often feels reminded of the medical profession where there are also professors, MD's  and other experts in their field, but where their relationship to their patients is worth a closer look.

The medical profession can be divided into three categories:

1.) 'normal' medical staff , trying to cure acute diseases the patient suffers from, by using all their knowledge.

2.) Pathologists which try to find out the causes why the patient has died. (Perhaps after an unsuccessful treatment by colleagues category 1) ;-)

3.) Doctors in the field of disease prevention such as those working at CDC (USA), Louis Pasteur Institute (F), and Robert Koch Institute (D) and perhaps also such medical experts in sports and public health , searching for better performance of their clients, injury prevention and better health on individual level and of the population as a whole.

If we look upon the eurozone, the structure can be compared to a patient who is seriously ill. So treatment by doctors from 1st category has started , while in early December 2011 those from 2nd category were already standing by to start their diagnosis what led to the exitus. So both categories involved are looking back in their analysis trying to find what happened, while cat. 1 trying to take countermeasures to keep the patient alive. So genius Dottore* Draghi and his team from European ER applied a mixture of steroids & antibiotics to fight the sepsis, and the patient so far survived, (some whisper they even added some morphine) but side effects of that treatment were never put to clinical tests before. So they ER team has to stand by to monitor their patient closely and apply antidotes when side effects appear or treatment wasn't sufficient to complete the healing. 

Greece: Project Helios doesn't need exports to the North

Dear reader,

as the author here came across this article today, he wondered if it isn't a misconception of the Greeks that there is a need of a long distance connection for getting their future solar power plants to work. Although only a few indicators were found so far that Greece is hoping to access German grid market by gaining access to German 'EEG Vergütungen' (guaranteed Feed-in-Tariff), somehow disappointment about 'cold water' is premature.

Of course it would be 'easy money' to build some solar parks in Northern Greece, connect them to German grid and get for 20 Years the fixed Tariff payed for by German electricity consumers. But currently there are three major obstacles to prevent such a thing:   

1.) Under current EEG (which is a German law from year 2000, revised later) it's not possible to connect a solar power plant of whatever size in a location outside German soil.(jurisdiction)
2.) Investments are usually financed to a high degree by banks handing out loans often running 20 years, where returns are pretty save, while under German jurisdiction and within German AAA stability of probably not exiting the eurozone.
3.) As mentioned before the whole EEG payouts to green power plant owners are being financed by surcharges per kWh used by consumers and small businesses. As burdens already being felt in Germany there are just now radical reductions in future payouts to solar power stations as a result of growing public anger about sky rocketing electricity bills. So hard to imagine what public reaction would be if German electricity consumers are forced to subsidize also Greek solar power production units.

There would be a fourth problem which is the long time needed for building long distance, super high voltage DC power transmission lines to Northern Europe. Even more so when they have to cross other non EU territories as well , with all foreseeable problems around legislation, governmental obstructions of those transit countries, and of course the costs for such a project. The costs which will even rise the longer the construction process will take.

---

Creating an organized exchange of ideas (by using Twitter)

Dear reader,

while reading Discussing EU blogging and the unlinked EU blogosphere by Ron Patz the idea was born to speed up the process Bruegel blog wanted to inspire. From personal experience it is known that while in general European professors of economics know by and large their colleagues and their work they don't necessarily know if and when their counterparts in other countries decide to join Twitter and where/when they decide to publish a new piece in some European, American or Asian newspaper.

So it is more or less a matter of coincidence when economists come along other economists while browsing the net and a busy professor doesn't have time to search the Internet if one of his colleagues has written some new important contribution on an ongoing debate or he doesn't have time to spend and search Twitter on a daily basis if another economist he knows joined the 'club'. And it's even more impossible to find those maybe also important voices he so far doesn't know by name ! The author here also helped out when he knew that economists A had an interest in reading economists B. A and B didn't know that they both had a Twitter account and so the author who knew both introduced A to B. This 'method' is as inefficient as incredibly slow, maybe slow enough that before everyone knows the other, the eurozone crisis has been solved or the zone has seized to exist.


Solution:

There needs to be a central Twitter account which maintains some lists of accounts of economists wanting to contribute to the exchange of ideas. Maybe just one list is sufficient for the time being and later there can be 'spin-offs' where account A can be part of list A (EU economy in general) and B (Eurozone), +C (Eastern Europe) , +D (banking, Basel III), E (etc)  ...

example:
@WhelanKarl member of (@voxeu) lists:            viewed from @voxeu could look like this:
[X] All economists #voxall                                  @WhelanKarl, @_basjacobs, @haucap,@pdegrauwe
[X] Eurozone         #voxez                                  @WhelanKarl, @_basjacobs, @haucap,@pdegrauwe
[  ] Eastern Europe #voxeast
[X] banking, BaselIII, Target2#voxbnk,voxbasl    @WhelanKarl, @_basjacobs
[  ] EIB  #voxeib
[  ] WTO #voxwto
[X] Ireland  #voxirl                                            @WhelanKarl
[  ] UK #voxuk
[  ] Germany #voxger                                         @haucap 
[  ] Belgium  #voxbel                                         @pdegrauwe

In order to have one central 'starting point' the author here suggests that Twitter account @voxeu should administrate such a list , since they already publish many pieces of those individuals in question on their website. So many future participants of such an exchange do already know VOXEU and it can be assumed that they visit their website on a regular basis anyway.
So an 'advertisement' placed on their homepage would help to find many contributors also to this new Twitter list of 'economists channels'. So a new and rather fast exchange of international economists can be invoked and by offering a complete list of 'economists channels' also give the interested wider public audience to participate in this exchange of excellent ideas.
The launch of such a list maintained by VOXEU could be accelerated by compiling an initial list of known accounts and applicants who would like to be added can contact @voxeu easily also by Twitter.

Public lists can also be followed too, so there wouldn't even be a need for putting all members to own twitter account and it is always 'up to date' and complete.

Of course those lists could also be maintained by @prosyn or both  platforms.

[update]
Apr 2nd 2012 Hashtags ("#", e.g #voxtarget2) can be assigned by putting 1-n proposals for future discussions into the description of each list. By using hashtags Twitter allows to have 'chatrooms' (groups) where only those tweets appear in a common timeline which are tagged according to selection given. (for more details see Twitter help)
Apr 3rd 2012 HOW TO: Use Twitter Lists  
Apr 6th 2012 Follow on Twitter (a directory being compiled)
Apr 6th 2012 Blending Governance and Twitter (NYTimes)
[/update]