EUCOM Economic Analysis - Part I

[Ulenspiegel]

@Surferbeetle: Good that somebody keeps this key thread running. I have been busy recently and have not spent much time in the net.

Something which catched my attention in the last days has been the drop in the share of equity buyers of homes in Germany and Austria mustered to finance their (IIRC first houses). The former has come from a report in the Suedeutschen Zeitung, the latter from insider sources in the sector.

The inflation fear, low rates and a relative good economic environment (yes, indeed) and perhaps the recent price hike ( the usual paradox) could all play a role. Who knows the cause(s), but if true it is an interesting development which might effect other pieces of the European economy.

More research is of course required...

From a more northern German POV - my sister is bankster in the credit department of a bank in the Hannover region:

Since 2000 it has been a very rare event for her to provide a typical German credit financing, i.e. people have 25% own money and get 75% as credit. It was quite common during the last decade that customers only wanted around 30% credit, the rest was provided by other family members. So no real surprise for me that this developement continous at even lower level in the current situation.

Living in Austria, I know from friends that it has been quite common for years that Italians bought flats in some Austrian cities, esp. Salzburg. Again higher money influx simply led to an additional increase.

You can add, that the last two years many objects were bought by Austrian and German insurance companies, this lead to increased prices (>5% p.a.) in my home town Graz, that's a lot for Austria.

Common for Germany and Austria was that there was no real estate bubble, this may change in some cities but generally real estate is still considered worth the money by "professional" investors - I have a different opinion :-).

[davidbfpo]

This BBC News report provides some context on the Catalan issue:http://www.bbc.co.uk/news/world-africa-19566838

[Surferbeetle]

Ulenspiegel,

Comparing and contrasting typical German mortgage financing with US financing is pretty interesting, in particular with the not so distant NINJA (no in come, job, assets) mortgage history in the US. There seem to be lessons learned from this when one considers Basel III's strict capital requirements for banks...and the implementation fight and associated timetable is a story in and of itself.

David,

It looks like the negotiations regarding a greater say, or even the maximalist position of full autonomy, have been energized by the higher level EU machinations of late. It should go without saying, however, that using the mob to strengthen one's bargaining position is a dangerous route to take.

_________________

Antrge auf Erlass einer einstweiligen Anordnung zur Verhinderung der
Ratifikation von ESM-Vertrag und Fiskalpakt berwiegend erfolglos, Bundesverfassungsgericht - Pressestelle -

Pressemitteilung Nr. 67/2012 vom 12. September 2012
Urteil vom 12. September 2012

http://www.bundesverfassungsgericht....bvg12-067.html

Das Bundesverfassungsgericht hat heute sein Urteil ber mehrere Antrge
auf Erlass einer einstweiligen Anordnung verkndet. Die Antrge sind vor
allem darauf gerichtet, dem Bundesprsidenten bis zur Entscheidung ber
die jeweilige Hauptsache zu untersagen, die am 29. Juni 2012 von
Bundestag und Bundesrat beschlossenen Gesetze auszufertigen und damit
die Voraussetzung fr die Ratifikation der mit ihnen gebilligten
vlkerrechtlichen Vertrge - des Vertrages zur Einrichtung des
Europischen Stabilittsmechanismus (ESM-Vertrag) und des Vertrages ber
Stabilitt, Koordinierung und Steuerung in der Wirtschafts- und
Whrungsunion (sog. Fiskalvertrag) - zu schaffen.

ber den Sachverhalt informiert die Pressemitteilung Nr. 47/2012 vom 2.
Juli 2012. Sie kann auf der Homepage des Bundesverfassungsgerichts
eingesehen werden.

Der Zweite Senat des Bundesverfassungsgerichts hat die Antrge mit der
Magabe abgelehnt, dass eine Ratifizierung des ESM-Vertrages nur
zulssig ist, wenn vlkerrechtlich sichergestellt wird, dass
1. durch die in Art. 8 Abs. 5 Satz 1 des ESM-Vertrages (ESMV) geregelte
Haftungsbeschrnkung smtliche Zahlungsverpflichtungen der
Bundesrepublik Deutschland aus diesem Vertrag der Hhe nach auf ihren
Anteil am genehmigten Stammkapital des ESM (190.024.800.000 Euro)
begrenzt sind und keine Vorschrift dieses Vertrages so ausgelegt werden
darf, dass fr die Bundesrepublik Deutschland ohne Zustimmung des
deutschen Vertreters in den Gremien des ESM hhere
Zahlungsverpflichtungen begrndet werden,
2. die Regelungen des ESM-Vertrages ber die Unverletzlichkeit der
Unterlagen des ESM (Art. 32 Abs. 5, Art. 35 Abs. 1 ESMV) und die
berufliche Schweigepflicht aller fr den ESM ttigen Personen (Art. 34
ESMV) einer umfassenden Unterrichtung des Bundestages und des
Bundesrates nicht entgegenstehen.

Die Bundesrepublik Deutschland muss zum Ausdruck bringen, dass sie an
den ESM-Vertrag insgesamt nicht gebunden sein will, falls sich die von
ihr geltend zu machenden Vorbehalte als unwirksam erweisen sollten.

[Ulenspiegel]

I was told by friends who lived in the USA for many years that in the States it is considered a good thing if you have a credit history; in Austria and Germany it is much better if you do not have one: Consumer credit or maxing out your credit card means for a German banker that you are not able to save, result is you end in a high risc group and pay higher interst rates for your mortgage. :-)

[Firn]

From a more northern German POV - my sister is bankster in the credit department of a bank in the Hannover region:

Since 2000 it has been a very rare event for her to provide a typical German credit financing, i.e. people have 25% own money and get 75% as credit. It was quite common during the last decade that customers only wanted around 30% credit, the rest was provided by other family members. So no real surprise for me that this developement continous at even lower level in the current situation.

Living in Austria, I know from friends that it has been quite common for years that Italians bought flats in some Austrian cities, esp. Salzburg. Again higher money influx simply led to an additional increase.

You can add, that the last two years many objects were bought by Austrian and German insurance companies, this lead to increased prices (>5% p.a.) in my home town Graz, that's a lot for Austria.

Common for Germany and Austria was that there was no real estate bubble, this may change in some cities but generally real estate is still considered worth the money by "professional" investors - I have a different opinion :-).

While I do strongly agree with the second part of your post I think I did not make my point clear about the equity ratio. I read a short notice in the Suedeutschen on which this recent
article seems to be based and it did fit my perception about a recent development in parts of Switzerland, Germany and Austria. A shallow googling seemed to strenghen this view. Basically there seems to be a run on "safe values" like houses in which an increasing amount of persons participate with little equity.

Some attractive areas have, has you have noted, indeed the problem that much non-local money flows into housing. Examples in Italy are the for example many villages in the Dolomites, creating a bad ratio between income and housing for the locals. The recent price declines seems strongly correlated with the redirection of the flow of legal or black money into similar objects in safer and more discrete locations. The infamous tax raid in Cortina d'Anpez is maybe a good symbol of the increasing focus on tax evasion and the strong tax increases in an already very heavily taxed country.

All in all it is not best of signs if something seems to become such a safe bet that considerable risk is taken by two sides to make it.

[Ulenspiegel]

While I do strongly agree with the second part of your post I think I did not make my point clear about the equity ratio. I read a short notice in the Suedeutschen on which this recent
article seems to be based and it did fit my perception about a recent development in parts of Switzerland, Germany and Austria. A shallow googling seemed to strenghen this view. Basically there seems to be a run on "safe values" like houses in which an increasing amount of persons participate with little equity.

Some attractive areas have, has you have noted, indeed the problem that much non-local money flows into housing. Examples in Italy are the for example many villages in the Dolomites, creating a bad ratio between income and housing for the locals. The recent price declines seems strongly correlated with the redirection of the flow of legal or black money into similar objects in safer and more discrete locations. The infamous tax raid in Cortina d'Anpez is maybe a good symbol of the increasing focus on tax evasion and the strong tax increases in an already very heavily taxed country.

All in all it is not best of signs if something seems to become such a safe bet that considerable risk is taken by two sides to make it.

OK, there are different aspects:

1) Switzerland is in a completely different position than Germany and Austria, real estate there is even with Swiss income extremly expensive in the whole country. They play in a different league.

2) The citizens of some German cities like Munich, Stuttgart, Hamburg, Berlin experienced the last 5 years high annual increases of real estate prices without the same increase of their income, here the situation is described correctly by the Sddeutsche. But these cities are not the avarage. Here banks are tempted to reduce the requiremets for own money. How this plays out will be seen.
Minor issues: Berlin price level in absolute numbers was much lower than the Munich level and berlin has a quite different structure of its surrounding areas, IMHO it is a little bit comparing apple and oranges.

3) Most cities shrink or fight to keep the current number of citizens (e.g. Hannover), here you need as investor good knowledge and feeling which neighbourhoods will prosper, which will stagnate, which will die, or even more tricky, which towns and villages near relatively attractive cities will survive. These B- or C-cities/towns have a very low price level and promise if correctly selected very nice ROI. Therefore, my bet is that a lot of the investments will make a loss because real estate agents working not longer on their home turf do not have these information.

[Fuchs]

The construction of houses in Germany varies a lot. The property to build a house on is about as expensive as the house in some regions, while it's almost fro free in others (and practically for free in certain regions where it's more typical to build a house on property that you got as a gift at your marriage and the like).

Decent old houses can be cheaper than a small car in some regions - especially in rural regions with shrinking population.

The construction of a new house varies even with equal quality a lot. Rural house construction often involves a lot of own work or work done by friends or relatives. The construction costs are in such cases not much higher than the material costs and in some regions even a car mechanic with an unemployed wife can build a family house before he turns 30.


Some cities (especially Frankfurt, Munich) have a well-deserved reputation for high cost of living in general and high cost of housing in particular. Wages for work in corporations in these areas tend to be clearly above average, while many public employees need to evade into cheaper surrounding towns and villages.


Germany does not tend to have bubbles in major markets. The only bubbles I remember right now were about exaggerations in new or revived sectors that experienced at least some degree of public subsidies or other incentives.

Houses are considered as an investment, but only so for securing the standard of life after retirement. They're durable enough to carry utility from *now* to 40 years in the future, while all other wealth during retirement depends on the economic output of that time (GDP in 40 years will pay for retirement money in 40 years). The demographic change means that this may become unsatisfactory.
We do usually not plan on selling houses we once owned unless they're inherited. We don't tend to buy or build a house when we expect to move to another job at a later time.

[Firn]

Fuchs post pretty muchs mirrors the situation in Italy. In general, based on observation and rather solid facts like the saving rate and personal debt the Italians tend to behave in a similar way when it comes to enduring/durable goods. We just manage the res publica much worse.

A big difference is the amount an Italian spends on food - then again we have good reasons for it. First it costs more in then in German stores and second it is very difficult to find another Western country in which you get such an excellent ROI on "eating out". This naturally drives demand.

P.S: Spending on durable goods has dropped in Italy a great deal since the depression started. The car market which is on level last seen sixty years ago is just the most visible sign. All in all it is a great time to buy a car if you have the money and need one.

[Surferbeetle]

Gentlemen,

The Last Harvest, from cornfield to new town, by Witold Rybczynski (NYT Review at http://www.nytimes.com/2007/07/29/bo...w/Green-t.html ), is a pretty interesting window into real estate in the US.

A credit history is a big deal in the US where 'easy credit' is commonly used/culturally acceptable for things such as purchasing gas, computers, washing machines, cars, houses, property, and small businesses (Credit Bureaus by Wiki, http://en.wikipedia.org/wiki/Credit_...#United_States

Household Life Cycles and Lifestyles in the United States, REX Y. DU and WAGNER A. KAMAKURA, Journal of Marketing Research Vol. XLIII (February 2006), 121–132, http://faculty.fuqua.duke.edu/~kamak...Lifestyles.pdf

____________

Gauck unterzeichnet ESM-Gesetz und Fiskalpakt, 13.09.2012, FAZ, http://www.faz.net/aktuell/wirtschaf...-11889456.html

Einen Tag nach der Entscheidung des Bundesverfassungsgerichts hat Bundesprsident Joachim Gauck die Gesetze zum Euro-Rettungsschirm ESM und zum Fiskalpakt unterzeichnet. Rechtliche Folgen hat das zunchst allerdings nicht.

Coalitiemeter: welke coalities zijn mogelijk?, NRC Handelsblad, http://www.nrc.nl/apps/coalitiemeter/

Kies de partijen die je wel en niet terug wil zien in de nieuwe coalitie. Je ziet dan direct welke coalities op basis van de laatste peilingen een meerderheid kunnen vormen.

De coaltiemeter probeert coalities te maken met zo min mogelijk partijen die gezamelijk een meerderheid vormen, waarbij elke partij noodzakelijk is om die meerderheid te vormen.

Schaeuble Cautions Spain Against Aid Bid in Poke at France, By Rainer Buergin and Brian Parkin - Sep 13, 2012 10:03 AM MT, Bloomberg News, http://www.bloomberg.com/news/2012-0...at-france.html

German Finance Minister Wolfgang Schaeuble discouraged Spain from seeking a full international bailout, saying another request for outside aid risked a fresh round of financial-market turmoil.

“I’m not in the camp that says ‘take the money,’” Schaeuble said in an interview in Berlin today when asked about French moves to press Spanish Prime Minister Mariano Rajoy’s government to ask for more aid. Spain “would be daft” to ask for a bailout on top of the 100 billion euros ($129 billion) for its banks if it didn’t need it.

[Fuchs]

The car market which is on level last seen sixty years ago is just the most visible sign. All in all it is a great time to buy a car if you have the money and need one.

The automotive sector is a tricky one.
Cars are not being used up to their full life expectancy in Europe.

A well-designed (not intentionally degraded by developers) new car can last for decades. Mercedes Benz E-class Taxi cabs regularly drive 300,000 km in few years without killing an critical parts such as the engine or transmission terminally.
Corrosion has been under control for two decades; the stuff that corrodes to the point of requiring a spare part or to the point of making the chassis unsafe - that's corroding by design. Some developers (even at good brands) sabotage their own design to ensure there will be demand for new cars in the future.

Cars could be durable enough for 30 years of service to a family. This may happen if the cartel of degrading the corrosion-resistance will be broken.
The consequences on the macroeconomic scale and on lifestyle as well as on the automotive sector (after market and custom upgrades could become the new big thing) would be huge. Cars could become an investment for the retirement comparable to houses.

[Firn]

I wrote already about the lack of Italian productivity growth. Now it has been picked up as page 1 topic by the Corriere della Sera

Dalla produttivit ai salari
Rapporto sul declino italiano: Rapporto sul declino italiano

Nella classifica delle maggiori economie mondiali il sistema nazionale scivolato all'ultimo posto

ROMA - Eravamo i primi, siamo diventati gli ultimi. Negli anni Settanta l'Italia era al primo posto per crescita della produttivit nell'industria rispetto ai principali Paesi nostri concorrenti nel mondo. Negli anni Duemila chiudiamo la classifica. Nel decennio 1970-1979 l'output per ora lavorata (valore aggiunto al costo dei fattori) del settore manifatturiero era cresciuto in Italia in media del 6,5% l'anno. Meglio del Giappone (5,4%), dell'Olanda (5,2%), della Francia e della Germania (intorno al 4%) e molto meglio dei padroni del mondo, gli Stati Uniti (2,7%), e della culla della rivoluzione industriale, il Regno Unito (2,4%). Negli anni Ottanta gli inglesi erano per balzati al primo posto (sar stata la cura Thatcher?) con una crescita della produttivit del 4,4%, l'anno mentre l'Italia era scivolata in coda, dimezzando il ritmo precedente (dal 6,5% al 3,2%). Negli anni Novanta la leadership fu conquistata dagli Stati Uniti, grazie soprattutto alle innovazioni tecnologiche e informatiche (4,3% l'anno) e l'Italia rallent ancora (2,6%). Ma nel primo decennio del Duemila, cio dopo l'introduzione dell'euro, che la produttivit nel nostro Paese precipita a un misero 0,4% in media d'anno, contro l'1,8% della Germania, il 2,5% della Francia, il 2,8% dell'Olanda, il 3% del Regno Unito. E meglio di noi ha fatto anche la Spagna (1,5%). Bastano questi dati a illustrare la centralit del problema della produttivit in Italia.

Nothing new there. Same old story and now without the option to Lira our way out. Monti has been unable, mostly due to very strong resistence to reform the labour market. Something correlated:

This graphic (page 2) shows in the average yearly unit labour costs growth in the last decade. The gap between Germany and the other big EU countries (sorry Poland) is just shockingly large, especially if you discount the estimates of 2011 and 2012. (Greece for example would have +2.5 instead of +1.5 % per year).