ifo Media Center
The ifo Institute invites you to participate in the discussion of interesting economic topics via the Internet. In our ifo Media Center a whole series of remarkable events are available and can be viewed in full length. We also record selected speeches and presentations given by employees or at events and make them available in our Media Center.
ifo Viewpoint No. 197: Trade Disputes: Why Trump’s Position Is Much Weaker against EU than China
US President Donald Trump insists that his country is being treated unfairly by both the EU and China in terms of commercial trade. By this he means that European and Chinese companies and their employees live on exports to the USA, while Americans benefit far less from market access to Europe and China. This is why Trump is threatening to start a trade war. He sees himself as in the stronger negotiating position – he thinks that isolation would damage China and Europe more than it would the USA. This reasoning is not only flawed because imports of foreign products are extremely useful to the demand-side, which includes both consumers and companies.
ifo Viewpoint No. 196: Italy’s New Government: Transfer Union or Euro Exit
The Five Star Movement and the Lega Nord promised Italian voters massive tax cuts and increases in public spending in their election campaigns. How a country with a government debt ratio of 132 percent of its economic output was going to finance these promises was unclear though. Now the first draft of a coalition agreement between the two parties has been made public, explaining where the money is supposed to come from: namely from the purses of taxpayers in other Eurozone countries. If these countries don’t go along with the plan, the coalitionists wish to take Italy out of the Eurozone.
ifo Viewpoint No. 195: Germany Should Adopt an Area-Based Property Tax
Germany’s Constitutional Court has declared the current property tax as unconstitutional because it is based on property values that are decades old, ultimately resulting in an arbitrary distribution of the tax burden among taxpayers. The Court explained that a property tax does not necessarily need to be based on real estate values. If, however, the tax is based on the value of plots and houses, sufficiently up-to-date values need to be used, and changes over time need to be taken into account.
ifo Viewpoint No. 194: Why We Need to React to Trump
US President Donald Trump began 2018 with a tax policy bang: he announced massive tax cuts in the US, with tax rates on corporate profits falling from 35 percent to 21 percent. With this reform Trump wants to encourage companies to invest more in the USA and to post a greater share of their global profits there.
ifo Viewpoint No. 193: Is the Grand Coalition Leading Germany towards a Transfer Union? The Euro Junktim
The CSU/CDU and the SPD are currently coming under fire for seeking to turn the Eurozone into a transfer union. Firstly, criticism is directed at their plan to enshrine the ESM euro bail out mechanism in EU law. This raises the question of whether the German veto on bail-out credit for countries with financial difficulties will be weakened. Secondly, the coalition wants to create a new fund conceived as the starting point for a future investment budget in the Eurozone. Although the coalition partners also say that the principle of linking control to liability in the Eurozone will continue to apply in the future, this is cold comfort. This principle has already been greatly weakened: not only through the bail-out credits granted to Greece that probably will never be repaid, but primarily through the TARGET balances in the ECB System. Via TARGET, Germany has granted other Eurozone countries interest-free credit worth over 900 billion euros for an undefined period of time. And this figure is rising. Germany urgently needs to scrutinise any uncontrolled increase in liability for other states. The grand coalition is doing just the opposite. It is moving in the direction of greater redistribution and joint liability. In line with these developments, Germany’s acting Finance Minister Peter Altmaier has signalled in Brussels that Germany would agree to a Eurozone deposit insurance scheme. He has warned that the volume of bad loans in the banking system needs to be reduced but this is not enough.
ifo Viewpoint No. 192: Hundred Year High Inequality in Germany? – A Fairy Tale Based on Selective Perception
Wikipedia defines selective perception as a psychological phenomenon whereby only certain aspects of the environment are perceived while others are blanked out. And this definition perfectly describes the current debate on inequality in Germany. The only facts and half-truths widely perceived and publicised by the media are those supporting the argument that there is a steadily growing gap between the rich and the poor. Other facts, which show that inequality is falling, are ignored because they do not fit in with the simple, easy-sell story of a growing divide.
ifo Viewpoint No. 191: Three-Step Plan for a Better European Monetary Fund
The European Commission has proposed further developing the European Stability Mechanism (ESM) into a European Monetary Fund (EMF). Firstly, the European Council should be given a greater say and should be able to approve or reject bail-out programmes. Secondly, it proposes giving the EMF more instruments and more money to support crisis-afflicted states and banks. Thirdly, the EMF should be obliged to report regularly to the European Parliament and national parliaments on its activities, with a view to achieving greater democratic control.
ifo Viewpoint No. 190: Sustainable Fiscal Policy Calls for More Restrictive Debt Rules for Eurozone
One of the key issues on the table in the coalition negotiations is the next German federal government’s position on reforming European Monetary Union. One of the highly controversial topics under discussion is the future of European debt rules. Critics claim that the current rules are too restrictive and will hamper public investment. In reality, a serious application of the existing concepts for ensuring sustainable fiscal policy would call for stricter, not softer debt rules.
ifo Viewpoint No. 189: Germany’s “Jamaica” Coalition and its Economic Policy
The recent Bundestag elections have transformed the political landscape in Germany. The grand coalition has been kicked out and the extreme right-wing Alternative für Deutschland (AfD), which often peddles provocative populist slogans, is now present in Germany’s parliament. This is causing quite a commotion, overshadowing the fact the AfD actually only won 13 percent of votes, and will not participate in government. It is time for politics to focus on the question of how a new government can be formed and what needs to be done for Germany to master the challenges ahead and effectively exploit opportunities in the future.
ifo Viewpoint No. 188: Populist Blackmail and the EU
When it comes to justifying violation of European rules on sovereign debt or liquidating banks, one argument is very much in vogue just now: That you have to make an exception once in a while to avoid fuelling populist criticism of the euro and EU.
ifo Viewpoint No. 187: Smart Tax Competition and the UK’s Withdrawal from the EU
Britain’s upcoming exit from the EU has led to a debate on the strategy British economic policy could take after Brexit. Politicians from other EU countries are concerned that the UK could establish itself as a tax and regulation haven at the EU’s doorstep. Using tax incentives the UK could attract companies as well as wealthy EU citizens to the country, with a negative impact on the economic development and tax revenues of the remaining EU member states.
ifo Viewpoint No. 186: How Germany Can Cooperate with Emmanuel Macron to Reform the Eurozone
There were sighs of relief in Germany when France elected Emmanuel Macron as President, but his victory also triggered a debate over Macron’s reform plans for the Eurozone. His critics claim that Macron wishes to turn the currency union into a transfer union against Germany’s interests. His supporters, by contrast, are calling on Germany to support Macron, or face the spectre of a Front National victory in the next elections. Both positions are unreasonable. Macron should be given time to further develop and explain his proposals for Eurozone reform. At the same time – and despite Germany’s delight at the victory of an EU-friendly president in France and its willingness to work with him – it is not the task of the German government to ensure that Macron wins the next election. He is the only person who can make that happen.
ifo Viewpoint No. 185: The Brexit Bill: A Useful Political Bargaining Chip not an Exact Science
At the start of the Brexit negotiations, EU chief negotiator Michel Barnier presented the British a hefty bill: exiting the EU will cost them 60 billion euros. Prime Minister Theresa May was “not amused” but has promised that her country will meet its obligations. What are these obligations? The European Treaties do not specify how a country’s withdrawal is to be paid for. Two approaches are currently being discussed. One can be called the “divorce” approach. An inventory of common assets and liabilities is determined, and each partner receives its share of net assets. In the case of the EU, net assets are negative. With the Brexit bill the British would assume their share of the net debt. The other is the “club-membership” approach. As long as you are a member you pay your membership fees; when you leave, it is only a matter of how long after having given notice you must make further payments. The assets of the club are not split up but are held by the remaining club members.
ifo Viewpoint No. 184: What It Will Cost Us If Donald Trump Is Serious
Free trade? Open markets? Both no longer seem to be the order of the day. Instead 2016 and 2017 may well go down in economic history as the years that ushered in a drastic change in economic policy course and saw it veer towards protectionism. Things all began with the Brexit vote by the British, with the climax to date being the Americans’ decision to elect a president who openly favours isolation by voting for Donald Trump.
ifo Viewpoint No. 183: Brexit Negotiations: Germany Must Make a Case for Free Trade with Britain
The time has finally come. In a few days the British government will formally declare Britain’s exit from the EU. The country’s EU membership is expected to end in March 2019. The terms of Britain’s exit and its future relations with the EU will be defined in the intervening period. If no agreement is reached, economic relations between the two parties will be governed by World Trade Organisation (WTO) rules. This would mean tariffs ranging from between five and ten percent on many goods, with far higher rates applying in some cases. Trade in certain services may even become impossible.
ifo Viewpoint No. 182: The Trump Tax: a Revolution in International Corporate Taxation
In recent weeks Donald Trump has repeatedly warned that foreign companies which distribute their products in the USA, but do not produce there, will be punished with an import tax of 35 percent. He has not yet explained how he plans to implement this tax. There are, however, strong indications that he may adopt a reform plan put forward by the Republican congressman Paul Ryan. Instead of customs duties, the plan outlines far-reaching reforms in the taxation of company profits. If implemented, the plan stands to revolutionise the international taxation system.
ifo Viewpoint No. 181: The Minimum Wage: Time to Take Stock
On 1 January 2015 a nationwide minimum wage of 8.50 euros per hour was implemented in Germany. As of January 2017 this wage will be raised to 8.84 euros. It is time to take stock. Although the debate over the minimum wage focuses strongly on its employment effects, the key question is how the minimum wage has impacted the wages actually paid in Germany. Average wages in Germany rose by 2.3 percent in 2015 versus 2014. In eastern Germany this increase amounted to 3.9 percent, and among unskilled workers it was as high as 7.9 percent. So the minimum wage seems to be working.
Ifo Viewpoint No. 180: The Economic Consequences of Mr. Trump
Politicians across Europe are still reeling at the shock election of Donald Trump as US President. That is understandable. They nevertheless need to snap out of it and start thinking seriously about how Trump’s triumph will impact Europe both economically and politically. The question on everybody’s lips is: how much of his election campaign rhetoric will Trump actually attempt to turn into economic policy and how should Europe react? Although his policy proposals to date have been hazy on detail, a fairly clear picture of Trump’s position has nevertheless emerged in four key areas.
Ifo Viewpoint No. 179: EU Budget Reform: How to Spend It
What does the EU actually do with all of the money at its disposal? If you ask the ‘man on the street’ you get the following answer: most of the money goes to agricultural subsidies. Some people may also recall building site boards that refer to financial support from the EU’s regional and structural policy.
Ifo Viewpoint No. 178: Impact of Globalisation on Taxation
The globalisation of the economy raises basic questions for the financing of public spending. Capital, goods and a growing number of people are mobile across borders. Many companies can relocate their production facilities, jobs and immaterial assets like patents internationally.
