Germany Slides Deeper into Budget Crisis

Political

Economic

Summary:

Solutions are still few and far between, especially ones that can be applied in the immediate term, and the government is still working on plans to readjust spending and funding that coalition partners can agree on.

• Germany’s constitutional court ruled last week that the government’s move to re-allocate emergency debt taken on during the pandemic to the current budget.

• This has left a 60-billion-euro funding gap in the government’s budget which is especially hitting climate policies.

• The crisis has highlighted divisions between coalition partners, and no immediate solution has been found so far.

Germany’s budget is in trouble.

Last week, the constitutional court ruled that it was unlawful to re-allocate unused debt originally designated for emergency Covid-19 pandemic funding to current spending plans.

This week, the finance ministry froze spending across all ministries.

But that could be just the tip of the iceberg as financial woes could lead to political ones, and even potentially endanger the future of Berlin’s coalition government.

Germany didn’t get to this point overnight, however — in ways, the roots of the current crisis even predate the pandemic. And that is because of Germany’s so-called debt brake.

A long time in the making

Enacted in 2009, the debt brake limits how much debt the government can take on, and dictates the maximum size of the federal government’s structural budget deficit. The rules say it can be no bigger than 0.35 percent of Germany’s annual GDP.

Since the global financial crisis, the debt brake has been the cornerstone of German fiscal policy.

But then, the Covid-19 pandemic happened. The government took on emergency debt to try to stem the impact the pandemic had on its budget through a temporary debt brake suspension.

As it turned out, the extra funding wasn’t actually needed. And so, the current coalition government decided to re-allocate it to finance policies aimed at climate change and a greener, more sustainable economy.

Constitutional or not?

Germany’s opposition was not happy about the re-allocation and eventually took the matter to Germany’s constitutional court. Last week, the verdict came in and, in a blow to the government, the court confirmed that the emergency funding was not allowed to be used for policy plans unrelated to the pandemic.

The government appeared somewhat unprepared for this verdict and was left fumbling for answers when questioned by colleagues and the press.

Some observers (and several Green party members), have suggested that the climate crisis is as much of an emergency as the pandemic. But the court’s ruling stands, and Germany’s budget now has a 60-billion-euro ($65 billion) hole.

The government has since scrambled to figure out its financial plans, and earlier this week German media reported that the finance ministry had more or less shut down the possibility of any additional spending that hasn’t already been scheduled for 2023.

A divided coalition

A major factor in the government’s dilemma is the range of political positions the three coalition partners hold.

There’s the Greens, who were the key instigators behind the climate policy plans that are now at risk and are therefore heavily attached to its success. Then the SPD, the social democrats, who would be content with making the debt brake more lenient or increase taxes. And the FDP, the Free Democratic Party, who control the finance ministry and don’t want higher taxes or higher debt.

But a full break up of the government is unlikely, according to a research note published by Eurasia Group directors Jan Techau, Mujtaba Rahman and Jens Larsen.

“Government stability is not in question, and the coalition is still likely to complete its full term,” they said.

“All three parties would face devastating losses in the (unlikely) case of snap elections, diminishing their appetite for breaking out of the current arrangement. No obvious new majority is possible in the current parliament,” they said.

Any solutions?

And in the long term?

“An obvious way out would be to change the constitution,” Berenberg Bank’s Chief Economist Holger Schmieding said in a note. This would require a new consensus with at least some of the opposition politicians needed to reach the required two-thirds majority, he explained, which would mean political deals and sacrifices on divisive topics such as asylum rules.

“For now, such a deal seems unlikely. But after the next election in September 2025, a (new) government that would once again need to include parts of the centre-right and centre-left may perhaps strike such a deal,” Schmieding said.

Reforming the debt brake after the next General Election is also one of the paths ahead that Citi economists Christian Schulz, Giada Giani and Benjamin Nabarro foresee. They also note that long-term changes to the way the German government is funded could be ahead.

“We expect the ruling to drive the government to build actual cash reserves in normal times as well as during emergencies, which would allow it to address long-term consequences of crises without breaching the debt break,” they wrote in a research note.

And finally, the bar for what constitutes an “emergency” (and therefore allows for a suspension of the debt brake) could be lowered — and eventually perhaps even include the climate crisis.

Source: CNBC

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Cohen

Commodity

Oil prices fell by more than 1% on Thursday, extending losses from the previous session, after OPEC+ postponed a ministerial meeting, leading to speculation that producers might cut output less than earlier anticipated.

Brent futures LCOc1 were down $1.02, or 1.2%, at $80.94 a barrel by 0625 GMT, after falling as much as 4% on Wednesday. U.S. West Texas Intermediate crude CLc1 dipped 87 cents, or 1.1%, to $76.23, after declining as much as 5% in the previous session.

Trade was expected to remain muted due to the Thanksgiving holiday in the United States.

In a surprise move, the Organization of the Petroleum Exporting Countries and allies including Russia delayed to Nov. 30 a ministerial meeting where they were expected to discuss oil output cuts.

Producers were struggling to agree on output levels and hence possible reductions ahead of the meeting originally set for Nov. 26, OPEC+ sources said.

Three OPEC+ sources, however, said this was linked to African countries, which are smaller producers in the group, which somewhat eased investor concerns.

Analysts said that Angola, Congo and Nigeria were seeking to raise their 2024 supply quotas above the provisional levels agreed at the OPEC+ June meeting.

"At that meeting, OPEC squared the books on increasing UAE’s quota... by reducing the targets for the African nations that were underperforming their required production numbers," said Helima Croft, an analyst at RBC Capital Markets, in a client note.

Angola and Congo have been producing below their 2024 production targets, whilst Nigeria has been able to increase output above target due to the improving security situation in the oil-rich Niger Delta.

"We think Nigeria can be assuaged as the leadership values its longstanding OPEC membership and improving ties with Saudi Arabia... However, it may be more difficult to bridge the gap with Angola which has been a moodier member of the producer group since it joined in 2007," said RBC's Croft.

"Disagreement between members will likely increase volatility within the market over the course of the next week," analysts at ING Bank said in a note.

The questions over OPEC+ supply come as data showed U.S. crude stocks jumped by 8.7 million barrels last week, which was much more than the 1.16 million build that analysts had expected.

U.S. oil rigs remained unchanged at 500 in the week to Nov. 22, energy services firm Baker Hughes BKR.O said in its closely followed report on Wednesday.

Meanwhile, about 3% of crude oil production in the Gulf of Mexico, or around 61,165 barrels of daily output, was shut in by an underwater pipeline leak, the U.S. Coast Guard said on Wednesday.

Source: Reuters

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Glendon

Shiba Inu (SHIB) Poised for April Gains After March Momentum_1

Shiba Inu (SHIB), the popular meme coin, is experiencing a surge in optimism as it enters April, according to an analysis by Gamza Khanzadaev of U.Today. Khanzadaev highlights SHIB's impressive performance in March, with a price increase of roughly 150%. This marks one of its most successful months in recent years and pushes the token above $0.00003 for the first time since February 2022. This impressive rally has reignited investor interest and sparked discussions about SHIB's future potential.

April's Outlook: A Mixed Bag with Potential

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Caution and Research Advised

The report emphasizes caution, advising against solely relying on historical data for investment decisions. SHIB's relatively short history and the inherent volatility of the cryptocurrency market are important factors to consider. Unforeseen events can disrupt market trends, making predictions uncertain. The article reiterates that the opinions expressed are those of the author and not financial advice. Readers are encouraged to conduct their research and consult with financial professionals before making any investment decisions in cryptocurrencies, as U.Today is not liable for any financial losses incurred through cryptocurrency trading.

Bullish Signs Fueling Optimism

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Can SHIB Break Through in April?

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Conclusion

While April's performance for SHIB remains uncertain, the recent momentum and positive indicators suggest the potential for continued growth. However, careful consideration of historical trends, market volatility, and individual risk tolerance is crucial before making any investment decisions.

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Devin

Economic

• Standing Committee of the National People’s Congress warned some data does not ‘truly reflect the actual situation’ during a meeting last month

• Preventing and resolving financial risks has been elevated as the ‘eternal theme’ of China’s financial work, with the system plagued by property and debt issues

China's Lawmakers Issue Rare Warning over Banks' Asset Quality Due to Inflated, Inaccurate Data_1

Picture: The meeting of China’s top legislature reviewed a State Council report on financial work presented by People’s Bank of China governor Pan Gongsheng.

China’s lawmakers issued a rare warning about the asset quality at small and medium-sized financial institutions, as their figures do not “truly reflect the actual situation” and such actions could derail Beijing’s de-risking campaign.

During a meeting of the Standing Committee of the National People’s Congress (NPC) in October, deputies called for more interventions to speed up the disposal of bad loans at small and regional financial institutions.

“The data of some small and medium-sized financial institutions is too inflated and does not truly reflect the actual situation,” according to the minutes of the meeting, which were only released on Wednesday.

“It is recommended that the central financial regulatory authorities promptly identify existing risks, accelerate the disposal of non-performing assets, consolidate capital, improve risk prevention capabilities and enhance its corporate governance structure.”

The meeting of China’s top legislature reviewed a State Council report on financial work presented by People’s Bank of China governor Pan Gongsheng.

China’s financial system – especially small regional banks – has been plagued by a prolonged property slump and rising local government debts in the past year.

Beijing raised “preventing and resolving financial risks” as one of its primary missions last year during the tone-setting annual central economic work conference.

Its urgency was further elevated as the “eternal theme” of China’s financial work during the twice-a-decade central financial work conference of top leadership at the end of last month.

The non-performing loan (NPL) ratio of all of China’s commercial banks was 1.61 per cent at the end of September, according to the National Administration of Financial Regulation.

China’s NPL ratio – lending that is subject to late repayment or is unlikely to be repaid in full – stood at 1.66 per cent at the end of September last year.

It can represent a major challenge for the banking sector as they reduce profitability.

The ratio for urban commercial banks during the same period was 1.91 per cent, while the ratio for rural banks was 3.18 per cent, compared to the 1.27 per cent for state-owned institutions.

Ding Shuang, chief Greater China economist at Standard Chartered Bank, said the NPL ratio far from reflected the actual quality of banks’ assets because many bad loans have been evergreening.

Evergreening involves extending new loans or providing additional credit to borrowers struggling to repay existing debt.

“These [evergreening] loans are not included in the NPL calculation. But everyone knows that the quality of many loans issued during the Covid-19 pandemic can be problematic,” Ding said.

During October’s meeting, lawmakers also called for risks associated with debts in the real estate sector to be addressed, with more action needed to prevent financial corruption.

“When some large real estate companies default on their debts, we should not only look for problems with the company’s own operations and management, but also look for problems with inadequate internal management or even corruption in relevant financial institutions,” they said, according to the minutes of the meeting.

“[It is necessary] to further improve the internal management of the financial system, and effectively prevent corruption in the financial field.”

Authorities should also increase financial support for unfinished, pre-sold homes, while supporting the reasonable financing needs of real estate companies and reducing their risk of credit defaults.

The NPC delegates also said that the effect of monetary policies on stimulating investment had been declining this year, with the money largely circulating among banks and big firms, without being channelled to small and medium-sized enterprises.

“It is recommended that the People’s Bank of China seriously study the financing difficulties of private small, medium and micro enterprises and come up with specific methods to effectively solve this problem,” the lawmakers added.

Source: scmp.com

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Owen Li

Palestinian-Israeli conflict

• Latest Developments: Israel says attacked over 300 Hamas targets over the last day.

The release of hostages under a temporary truce between Israel and Palestinian Hamas militants will not happen before Friday, Israel's national security adviser and the U.S. said, dashing hopes of relatives that some would be freed on Thursday.

Israel and Hamas agreed early on Wednesday to a ceasefire in Gaza for at least four days, to let in humanitarian aid and free at least 50 hostages held by militants in the enclave in exchange for at least 150 Palestinians jailed in Israel.

The starting time of the truce and release of hostages captured by Hamas during its Oct. 7 attack on Israel has yet to be officially announced. An Egyptian security source said mediators had sought a start time of 10 a.m. (0800 GMT) on Thursday.

Speaking on Thursday morning, Qatar's foreign ministry spokesperson Majid bin Mohammed Al Ansari said an announcement on the beginning of the truce could come in the next few hours. Qatar has been mediating in the negotiations on the truce.

"The negotiations on the release of our hostages are advancing and continuing constantly," Israeli National Security Adviser Tzachi Hanegbi said in a statement released by the prime minister's office.

"The start of the release will take place according to the original agreement between the sides, and not before Friday," it said.

White House spokesperson Adrienne Watson said final logistical details for the release were being worked out. "That is on track and we are hopeful that implementation will begin on Friday morning," Watson said.

But there was no let-up in the fighting early on Thursday, reports said.

Palestinian media said Israeli aircraft and artillery struck Gaza's southern city of Khan Younis in at least two waves and 15 people were killed. Attacks were also reported in several other parts of Gaza, including the Jabalia and Nuseirat camps.

Israel said its forces carried out aerial strikes on over 300 Hamas targets over the past day. Reuters was unable to independently verify the reports.

In Israel, sirens warning of incoming rocket fire from Gaza blared in communities near the border with the enclave, the military said. There were no reports of damage or injuries.

Israel's public broadcaster Kan, citing an unidentified Israeli official, reported there was a 24-hour delay in the truce because the agreement was not signed by Hamas and mediator Qatar. The official said they were optimistic the agreement would be carried out when it was signed.

"No one said there would be a release tomorrow except the media ... We had to make it clear that no release is planned before Friday, because of the uncertainty that hostages' families are facing," Kan quoted a source in Israeli Prime Minister Benjamin Netanyahu's office as saying.

Israeli media, citing anonymous officials, reported the pause in fighting with Hamas also would not start before Friday. Israel's Ynet news website reported that Israel had not yet received the names of the hostages slated for release by Hamas.

Since the Hamas attack on southern Israel that surprised the government and shocked Israelis, five hostages have been recovered alive. Israel says 1,200 people were killed, mostly civilians and about 240 hostages of different nationalities taken hostage by Islamist gunmen.

In retaliation, Israel has subjected Hamas-ruled Gaza to a siege and relentless bombardment. More than 14,000 Gazans have been killed, around 40% of them children, according to medical officials in the territory.

'NEED TO KNOW THEY ARE ALIVE'

Netanyahu made no mention of a potential delay in implementation of the agreement during a press conference late on Wednesday. Hanegbi's statement was released about an hour after the press conference.

"We need to know they are alive, if they're okay. It's the minimum," said Gilad Korngold, who said he drew just a measure of comfort from the deal between Israel and Hamas and was among those who was still awaiting word of relatives. Seven of his family members, including his 3-year-old granddaughter, were taken hostage.

"I want everybody back. But I think - and it's a very tough decision - but I think the children and women must be (first). They are most fragile...they need to get out."

The U.S. also hoped that aid would begin reaching Gaza in large volumes within the next few days, White House national security spokesperson John Kirby said.

The 50 hostages would be released over four days at a rate of at least 10 daily, Netanyahu's office said. The truce could be extended day by day so long as an additional 10 hostages were freed each day, it said.

Israel's justice ministry published a list of 300 names of Palestinian prisoners who could be freed.

Hamas said the initial 50 hostages would be released in exchange for 150 Palestinian women and children imprisoned in Israel. Hundreds of trucks of humanitarian, medical and fuel supplies would enter Gaza, while Israel would halt all air sorties over southern Gaza and maintain a daily six-hour daytime no-fly window in the north, Hamas said.

The truce agreement, the first in a nearly seven-week-long war, was reached after mediation by Qatar and seen by governments around the world as potentially easing the suffering of civilians in the Gaza Strip.

Gaza is the "most dangerous place in the world to be a child," Catherine Russell, head of the United Nations children's agency UNICEF, told the U.N. Security Council on Wednesday. More than 5,300 Palestinian children had reportedly been killed since Oct. 7, Russell said.

Source: Reuters

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Thomas

Economic

China's Zhongzhi Enterprise Group told investors it is heavily insolvent with liabilities of up to $64 billion, more than double its assets, as one of the country's leading wealth managers grapples with a deepening property sector crisis.

The firm, which has sizable exposure to China's real estate sector, apologised to its investors in a letter that said it had total liabilities of about 420 billion yuan ($58 billion) to 460 billion yuan ($64 billion).

The liabilities compared to Zhongzhi's estimated total assets of about 200 billion yuan ($27 billion), according to the letter, which was issued on Wednesday and was seen by Reuters.

Beijing-based Zhongzhi did not immediately respond a Reuters request for comment.

The worsening woes at Zhongzhi, a major player in China's $3 trillion shadow banking sector - roughly the size of the French economy - is set to reignite worries about the ripple effect of the property debt crisis on the broader financial sector.

China's highly indebted property sector has been reeling from a liquidity crunch since 2020. Defaults by developers since late 2021 have impeded economic growth and rattled global markets.

Shadow banking-linked wealth managers in China typically operate outside many of the rules governing commercial banks and mainly channel the proceeds of wealth products sold to retail investors to real estate developers and other sectors.

Signs of trouble at the Zhongzhi group first came to light in July when Zhongrong International Trust Co, a leading trust company controlled by Zhongzhi, missed payments on dozens of investment products.

Zhongzhi, whose business interests span from mining to wealth management, said in the letter that as the group's assets were concentrated in long-term debt and equity investments it was difficult to liquidate them and book the returns.

"Initial inspections show that the group is seriously insolvent and has significant continuing operational risks. The resources available for debt repayment in the short term are much lower than the group's overall debt scale," it said.

"The Zhongzhi group deeply apologises for the losses caused to investors. We fully understand the urgency, importance and seriousness of resolving this overall risk," the group said in the letter.

Zhongzhi had hired one of the Big Four accounting firms to conduct an audit of the firm, and was seeking strategic investors, its management told investors in a meeting in August, according to a video seen by Reuters at the time.

Starting off with timber and real estate trades in the 1990s, Zhongzhi quickly expanded into businesses ranging from chipmaking, healthcare, new energy vehicles and finance, according to its website.

Its financial businesses include trust, asset management, insurance, futures, and wealth management.

Zhongzhi has been selling stakes in some listed companies it controlled over the past few years, and reducing the size of its business, after coming under pressure in the wake of China's crackdown on shadow banking, and the property market downturn.

Source: Reuters

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Thomas

Palestinian-Israeli conflict

Latest news on the Israeli-Palestinian conflict

0:01

The Iraqi people took to the streets to demonstrate and demand that the Iraqi resistance forces continue to attack US bases in Iraq and Syria.

Latest News on the Israeli-Palestinian Conflict (November 23)_1

Picture: On November 22, during a funeral in Baghdad, mourners carried the coffin of an Iraqi Hezbollah Brigades fighter who was killed by a US airstrike in Youlf Sahar, south of Baghdad.