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German fight over Schäuble largesse

by David Marsh in Berlin | Thu 18 Jan 2018

Talks in Germany on re-establishing the coalition between the CDU/CSU and the SPD, both under weakened leaders, will determine much more than Chancellor Angela Merkel's future. Although the SPD is cautious about setbacks, it is tempted by an unusual opportunity to spread across Germany and Europe an estimated €60bn of budgetary largesse amassed at the finance ministry after the era of tight budgets, low interest rates and buoyant tax receipts under Wolfgang Schäuble, the former finance minister and current president of a fractious Bundestag.

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Japan-China financial co-operation

by Adam Cotter in Singapore and David Marsh in London | Wed 17 Jan 2018

Enhanced co-operation between China and Japan is likely to be one of the prime trends to follow in the next 12 months. Considerable strains remain, not least reflecting disputes over territorial claims and China's increased military presence across eastern Asia. Yet Chinese President Xi Jinping and Japanese Prime Minister Shinzo Abe have reinforced their domestic political positions in the last few months. For both leaders, Donald Trump's shift towards unilateralism is an incentive to identify shared interests and improve regional ties.

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Austerity fails to eliminate UK deficit

by Brian Reading in London | Tue 16 Jan 2018

Seven years of austerity have failed to eliminate Britain's budget deficit. Growth has suffered. Real incomes have shrunk. Social costs have been grievous. History warns against going for growth, but it may be worth the risk. Austerity depresses demand, but increased demand could raise prices more than production. Productivity growth has failed to recover to its pre-financial crisis rate, and monetary profligacy has been an ineffective antidote to fiscal stringency.

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The end of Greek bail-outs

by Joergen Oerstroem Moeller in Singapore | Mon 15 Jan 2018

After almost eight years under EU and IMF bail-out programmes, there is reason for optimism in Athens. At the end of December Greek legislators approved the country's first 'normal' budget since the onset of the country's debt crisis. The financial press, in spite of devoting innumerable pages during the crisis to predictions that the euro area would collapse, has almost completely ignored the good news. Euro area 2018 growth will probably exceed that of the US, and will be roughly twice UK growth.

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German industry must influence Brussels

by Hans-Olaf Henkel in Berlin | Fri 12 Jan 2018

On Tuesday Philip Hammond, the UK chancellor of the exchequer, and David Davis, Britain's minister for leaving the EU, wrote an article in the Frankfurter Allgemeine Zeitung aimed at German industry leaders. Berlin has delegated the Brexit strategy to Michel Barnier, the Commission's chief negotiator, who clearly does not represent the business community's interests. Germany should urge Brussels to support UK demands for uninterrupted access to the service and financial sectors, or to back a call for an exit from Brexit.

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Coalition doubts in Berlin

by David Marsh in London | Thu 11 Jan 2018

The booming German economy has been effectively decoupled from political confusion in Berlin over forming a new government – but doubts are rising on how long this will last. Bundesbank President Jens Weidmann says heady German GDP growth will decline after 2018 because of capacity problems and labour shortages. His prognosis stresses the need for measures to increase Germany's underlying growth rate. But such firm policy action is likely to be lacking unless a new government is formed soon showing purpose on the economic front.

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Switzerland collateral victim of Brexit

by Denis MacShane in Zurich | Wed 10 Jan 2018

Members of the Swiss parliament are worried they are becoming a collateral victim of Brexit after Brussels stated Switzerland's practice of trading EU company shares on the stock exchanges in Zurich and Bern will only be acceptable to the EU for a further 12 months. 'It is clear Brussels does not want to see any concessions made to Bern that can be cited as a precedent as the UK tries to start talks in the hope that the City can keep current access to European capitals,' said one senior Swiss MP.

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OMFIF's links to Africa

by Joel Kibazo in London | Wed 10 Jan 2018

OMFIF takes Africa's issues and people seriously in trying to explain the matters that affect public pension funds, central banks, sovereign funds, regulators and treasuries. Imagine my joy at seeing how my beloved continent has been brought into the OMFIF fold, in meetings, events and publications such as the Africa Financial Markets Index. The region remains a mixed picture. Nigeria is out of recession, but South Africa continues to bump along the bottom. Politics has been a great test in both Kenya and Zimbabwe.

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Bubbles pervade world economy

by Desmond Lachman in Washington | Tue 9 Jan 2018

In 1933 Sir John Templeton, the renowned fund manager, remarked that the investor who says 'this time is different' has uttered among the four most costly words in the annals of finance. He might well have been speaking about modern investors, who try to convince themselves that the bubbles in the global economy will have a happier ending than previous ones. They do so despite the numerous good reasons to fear that, if the consequences of today's global bubble are indeed different from 2008, it may be because it is more dangerous.

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Rising Japan inflation: a possible shock

by Akinari Horii in Tokyo | Mon 8 Jan 2018

Extraordinary monetary easing and expansionary fiscal policy have eased balance sheet pressures stemming from the 2008 financial crisis. Yet abnormally high liquidity has built up on financial markets, together with a debt overhang from excessive borrowing by governments in advanced countries and corporates in emerging economies. Some adjustment to these decade-long excesses is inevitable, potentially setting off a market shock. One possible trigger is a resurgence in inflation, particularly in Japan.

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