Financial policy dominated by consolidation
Kristina vanDeuverden
Wirtschaft im Wandel,
No. 10,
2002
Abstract
Submitting the Stability and Growth Pact European member states committed themselves to reduce their budget deficits. In spring this year the German fiscal position worsened more and more and it became obvious that the deficit target would – again – be missed. Despite the worsened starting point Germany affirmed to follow its original stability programme and to attain a budget “close to balance” by the year 2004. Thus, consolidation will have to be strengthened and the scope for fiscal policy narrows down.
If current fiscal policy is not sustainable, the necessity of consolidation is obvious. However, the mode of consolidation is controversial. The Stability and Growth Pact focuses on converging budget deficits close to balance. For this, short-term oriented consolidation dominates the more medium and long-term oriented aspects of fiscal policy. Generating economic conditions by fiscal policy is at least restricted, maybe temporarily impossible – and shortening the consolidation period increases its costs.
A forecast of the government’s financial development in the years 2002 to 2006 shows clearly that the restructuring of revenues and expenditure will show no progress. In particular, the lack of structural reforms will burden Germany’s fiscal situation in the medium-term oriented consolidation period. However: the political self-commitment this spring leaves no scope for alternatives, but to enforce the consolidation. Despite some efforts, the projection concludes that by the year 2004 the budget will show a deficit.
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A revised theory of contestable markets : applied on the German telecommunication sector
Christian Growitsch, Thomas Wein
External Publications,
No. 275,
2002
Abstract
Despite the scepticism raised by the German Monopoly Commission our analysis shows that the revised theory of contestable markets can be applied to the telecommunications market better than expected. The original contestable market theory implied three assumptions necessary to be satisfied to establish potential competition: Free market entry, market exit is possible without any costs, and the price adjustment lag exceeds the entry lag. Our analysis shows that if the incumbent reduces its prices slowly (high adjustment lag) and the market entry can be performed quickly (low entry lag), a new competitor will be able to earn back sunk costs. Therefore it is not necessary that all three conditions are satisfied for potential competition to exist. We applied the ‘revised’ contestable market theory to the German telecommunication market and have been able to clearly identify the value added stages in which regulation is required. Under the present conditions local loops - which can be determined as natural monopolies - are not contestable due to sunk costs, high entry lags expected and a probable short price adjustment lag. Local loops can be identified as monopolistic bottlenecks therefore. Regional and local connection networks should also be regulated because a high entry lag and a low price adjustment lag have to be expected as well as current competition does not exist today. The national connection network shows current competition between several network providers; hence regulation can be abolished in this field. Assumed that network access is regulated, services can be supplied by several competing firms.
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Investment Behaviour of Financially Constrained Multinational Corporations: Consequences for the International Transmission of Business Cycle Fluctuations
Diemo Dietrich
IWH Discussion Papers,
No. 165,
2002
Abstract
The paper investigates the investment decision of a financially constrained multinational
corporation (MNC) planning investment projects both at home and in a developing
country. The collateral values of the projects diverge because of country specific
transactions costs so that the willingness of banks to grant a loan depends not only on
the MNCs financial wealth but also on the share of FDI in total investment. It is shown
that i) variations in the MNCs financial standing affects FDI stronger than domestic
investment, ii) FDI is likely to decrease following a macroeconomic shock to the MNC
parent, and iii) domestic investment is likely to increase following a macroeconomic
shock to the MNC affiliate.
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Bank-Firm Relationships and International Banking Markets
Hans Degryse, Steven Ongena
International Journal of the Economics of Business,
No. 3,
2002
Abstract
This paper reviews how long-term relationships between firms and banks shape the structure and integration of banking markets worldwide. Bank relationships arise to span informational asymmetries that are endemic in financial markets. Firm-bank relationships not only entail specific benefits and costs for both the engaged firms and banks, but also directly affect the structure of banking markets. In particular, the sunk cost of screening and monitoring activities and the 'informational capital' collected by the incumbent banks may act as a barrier to entry. The intensity of the existing firm-bank relationships will determine the height of this barrier and shape the structure of international banking markets. For example, in Scandinavia where firms maintain few and strong relationships, foreign banks may only be able to enter successfully through mergers and acquisitions. On the other hand, Southern European firms maintain many bank relationships. Therefore, banks may consider entering Southern European banking markets through direct investment.
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Price level effects of the Euro-cash introduction
Axel Lindner
Wirtschaft im Wandel,
No. 4,
2002
Abstract
This article gives evidence that the euro cash changeover has contributed to the increase in the price level in Germany in January 2002.
It is shown that the menu costs approach can easily explain this finding. An implication of this explanation is that the changeover will have only a temporary effect on the price level.
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Fiscal costs of employment creating schemes - a case study
Birgit Schultz
Wirtschaft im Wandel,
No. 1,
2002
Abstract
The evaluation on job creation programs shows a longer unemployment duration of treatment than the non-treatment. In a case study we calculate the additional public cost of the treatment and the subsequent demand of treatment compared with the outcome in a non-treated situation. Additionally we are looking on the break even.
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Supraregional sales markets: Development chances for companies in the East German manufacturing sector
Brigitte Loose, Udo Ludwig
Wirtschaft im Wandel,
No. 16,
2001
Abstract
In this paper the export activities of the East German manufacturing industry are studied where exports are defined in a broad sense including both sales abroad and in West Germany. Survey data for 1998 and 1999 are used to reveal the relationship between technical as well as institutional characteristics of the companies and their exports. The following questions are discussed: Which companies participate in the export activities? What are the main regions of their business? Which in-house factors influence the export activities? What are the financial outcomes for the companies engaged in exports? Hypotheses are built on the basis of the market transaction costs theory. Bivariate and multivariate approaches are applied. The data are taken from the “Establishment Panel” of the Institute for Employment Research at the Federal Employment Services (IAB) in Nuremberg (Germany).
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Climate protection policy in the housing sector: Lacking impact and need for action
Steffen Hentrich
Wirtschaft im Wandel,
No. 11,
2001
Abstract
Energy savings in the rental housing sector may contribute to the reduction of global greenhouse gas emission. However, emissions have gone up since the early nineties despite of large energy saving potentials. In general the effects of energy saving regulations and support programmes were overestimated. Unfortunately, these programmes ignore market specific restraints.
Markets do not provide optimal incentives to prevent emissions since the costs of greenhouse gas emissions are not fully internalised in fuel prices. Special characteristics of rental housing market in Germany enhance this deficit. Consequently profitable measures of saving energy are neglected. Overall the effectiveness of regulations and support programmes suffers.
Therefore it is necessary to strengthen energy saving incentives. Suitable instruments would include a gradual rise in fuel taxes (Öko-Steuer), a reduction of rental housing market control and measures to improve the transparency of energy consumption.
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On the stability of Hungarian banks
Werner Gnoth
Wirtschaft im Wandel,
No. 9,
2001
Abstract
The participation of foreign capital, mainly of foreign banks in privatization of Hungarian banks has been decisive for reaching of competitiveness and stability. But the process of transformation of banks is not yet over. Many banks have not yet succeeded to compensate the revenue shortfalls and higher costs by a bigger variety of transactions, especially expanding their off-balance-sheet activities. Merges could also help to solidify stability and international competitiveness of rhe banking system. Analyzing several indicators of Hungarian banking system, we found no sign of crisis. Comparing significant indicators of the banking systems between Hungary, Poland and Czech Republic, we found the Hungarian banking system as having been more successful.
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Overall economic production in East Germany grows slightly despite international cyclical weakness
Hans-Ulrich Brautzsch, Brigitte Loose, Udo Ludwig
Wirtschaft im Wandel,
No. 7,
2001
Abstract
The article deals with the economic development in East Germany up to the
year 2002. It is shown the strong influence of the capacity adjustments in construction
and state sectors on the economic growth. Moreover the article analyzes
in detail the chances and problems of the sectors “manufacturing“ and “construction“ with productivity and unit labor costs playing the central part in restoring their competetiveness.
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