DGAP-News: Silvia Quandt&Cie. AG, Merchant&Investment Banking: In-between the lines - Bernhard Eschweiler
(firmenpresse) - DGAP-News: Silvia Quandt&Cie. AG, Merchant&Investment Banking /
Key word(s): Miscellaneous
Silvia Quandt&Cie. AG, Merchant&Investment Banking: In-between the
lines - Bernhard Eschweiler
30.06.2011 / 16:33
---------------------------------------------------------------------
- The marathon of Greece's debt crisis has a long way to go
- Playing for time is costly but is politically and financially safer
- Germany risks wasting its economic windfall gains on election politics
Markets reacted with relief to the passing of the new fiscal tightening
measures by the Greek parliament although the vote was close. But make no
mistake, this is a marathon and more than half of the distance is still in
front. The new aid package buys Greece and the Troika (EU, ECB and IMF)
important time. This is costly and will probably not prevent some form of
debt restructuring in the future, but is politically and financially the
best result at the moment. The current outcome is the result of arm
twisting and compromises on all sides. Importantly, Germany dropped its
demand to extend the maturity of Greek debt held by private investors by
seven years. Domestically, Chancellor Merkel also gave in to pressure from
the Liberal Democrats (her coalition partner) to cut taxes before the next
election in 2013. The numbers discussed are not huge, but the direction
sends the wrong signal for both the economy and fiscal consolidation.
Greece needs an economic plan
The second support package of EUR120 billion will keep Greece afloat until
at least 2014, provided each tranche is released. This buys both Greece
and the Troika plenty of time, yet is not a final solution. The latest
proposal by the French government is politically clever as it results in
more private creditor involvement without provoking the rating agencies,
but is also just a play for time and not a final solution.
In our judgment, Greece will not be able to stop the vicious dynamic of
debt growth (see box: The Greeks of government debt). If that is true, why
not bite the bullet now, restructure the debt and save the compounded
interest expenses? The answer is because Greece cannot be seen in
isolation as was the case for Uruguay for example.
- First, any restructuring will be termed a default and have wide
reaching negative contagion effects on other troubled Euro-area
government debt and risk systemic turmoil in the European financial
system, especially through the banking sector.
- Second, this has the potential to result in much higher economic and
fiscal costs, especially if it jeopardizes Spain, which currently seems
to have a chance to make it ashore without external support.
- Third, debt restructuring, especially a steep haircut, would take the
pressure off the Greek government to continue the fiscal adjustment and
structural reforms. The precedence of an easy solution risks also
tempting other troubled Euro members like Ireland and Portugal to seek
a similar treatment.
Still, what should the time be used for! The answer is hopefully smarter
than so far. Most importantly, Troika and Greece need to work on a plan
how to consolidate public finances and revive the economy at the same time.
The proposal by EU Commission President Barroso to give Greece EUR 1
billion from the structural development fund is just a sporadic idea and
not a plan. Second, the Troika needs to work out with Greece what to do
once they hold most or even all of Greek government debt. At that stage,
although probably several years away, a restructuring will be sensible and
can be done outside the market. The challenge is to keep Greece focused on
reforms until that stage is reached. The experience so far promises that
this process will not be smooth. There will be times when the release of a
new tranche will be at risk. Moreover, there may be the need for a third
package to shift all Greek government debt into the hands of the Troika.
Stay buckled up!
German fiscal policy moves in wrong direction
In contrast to Greece, Germany enjoys strong economic and fiscal tail
winds. Growth last year as well as this year far exceeds most forecasts.
Tax revenues in the year to May rose 9.2% from the same period last year.
The latest official estimate puts annual tax revenues roughly 2% of GDP
higher than the forecast a year ago. Until 2014, the government is
expected to collect EUR 180 billion more taxes than was estimated in May
last year. Moreover, these estimates are based on conservative growth
assumptions. For 2011, the tax appraisers worked with 2.6% real growth.
Assuming 3.5%, which may be conservative, the government can count on
additional revenues of EUR 10-to-15 billion in 2011 alone. On the
expenditure side, social security spending, like unemployment benefits are
falling faster than expected. All in all, the general government deficit
will easily slip inside the 3% Maastricht criteria in 2011. Furthermore,
roughly balancing the budget as required by constitution starting from 2016
is feasible, especially given Germany's increased growth potential.
So, why not spend a bit of the fiscal gains on tax cuts for small and
middle income earners. That is what the beleaguered Liberal Democrats are
demanding and Chancellor Merkel, as so often, seems willing to give in.
Indeed, the figures discussed (EUR 8-to-10 billion, less than 0.5% of GDP)
are not so big and unlikely to threaten the constitutional budget target.
Nevertheless, tax cuts send the wrong signal.
- First, the motivation for cutting taxes is purely political. There is
no economic concept. Not even the much demanded consolidation and
simplification of the tax system will be achieved.
- Second, before cutting taxes, the government should factor in other
expenditures that are currently not in the numbers. These include the
yet quantified but potentially large cost of the nuclear exit (more
subsidies for renewable energy and house insulation, new grids etc.)
and Germany's final share of the bailout for Greece and potentially
other crisis countries (bailing out Greece could cost Germany
1.0%-to-1.5% of GDP).
- Third, Germany needs more than just a balanced budget. At 83%, the
debt/GDP ratio is well above the pre-crisis level as well as the
Maastricht criteria (60%). Reducing the government debt now and
aggressively should be a priority, given the future challenges of the
aging population. From 2020 onwards, the additional cost of the aging
population is estimated to be around 5% of GDP.
- Fourth, with the ECB's hands mostly tied, fiscal policy should act
countercyclical to reduce the overheating pressures in the economy and,
thus, tame the risk of inflation. In fact, that could mean raising
taxes and/or cutting spending.
Disclaimer
This analysis was prepared by Bernhard Eschweiler, Senior Economic Advisor,
and was first published 30 June 2011, Silvia Quandt Research GmbH,
Grüneburgweg 18, 60322 Frankfurt is responsible for its preparation. German
Regulatory Authority: Bundesanstalt für Finanzdienstleistungsaufsicht
(BaFin), Graurheindorfer Str. 108, 53117 Bonn and Lurgiallee 12, 60439
Frankfurt.
Publication according to article 5 (4) no. 3 of the German Regulation
concerning the analysis of financial instruments (Finanzanalyseverordnung):
Number of recommendations Thereof recommendations for issuers to which
from Silvia Quandt Research investment banking services were provided
during
GmbH in 2011 the preceding twelve months
Buys: 96 37
Neutral: 41 1
Avoid: 4 0
Company disclosures
Article 34b of the German Securities Trading Act (Wertpapierhandelsgesetz)
in combination with the German regulation concerning the analysis of
financial instruments (Finanzanalyseverordnung) requires an enterprise
preparing a securities analysis to point out possible conflicts of interest
with respect to the company or companies that are the subject of the
analysis. A conflict of interest is presumed to exist, in particular, if an
enterprise preparing a security analysis:
(a) holds more than 5 % of the share capital of the company or companies
analysed;
(b) has lead managed or co-lead managed a public offering of the
securities of the company or companies in the previous 12 months;
(c) has provided investment banking services for the company or companies
analysed during the last 12 months for which a compensation has been or
will be paid;
(d) is serving as a liquidity provider for the company's securities by
issuing buy and sell orders;
(e) is party to an agreement with the company or companies that is the
subject of the analysis relating to the production of the recommendation;
(f) or the analyst covering the issue has other significant financial
interests with respect to the company or companies that are the subject of
this analysis, for example holding a seat on the company's boards.
In this respective analysis the following of the above-mentioned conflicts
of interests exist: none
Silvia Quandt Research GmbH, Silvia Quandt&Cie. AG, and its affiliated
companies regularly hold shares of the analysed company or companies in
their trading portfolios. The views expressed in this analysis reflect the
personal views of the analyst about the subject securities or issuers. No
part of the analyst's compensation was, is or will be directly or
indirectly tied to the specific recommendations or views expressed in this
analysis. It has not been determined in advance whether and at what
intervals this report will be updated.
Equity Recommendation Definitions Silvia Quandt Research GmbH analysts rate
the shares of the companies they cover on an absolute basis using a 6 -
12-month target price. 'Buys' assume an upside of more than 10% from the
current price during the following 6 - 12-months. These securities are
expected to out-perform their respective sector indices. Securities with an
expected negative absolute performance of more than 10% and an
under-performance to their respective sector index are rated 'avoids'.
Securities where the current share price is within a 10% range of the
sector performance are rated 'neutral'. Securities prices used in this
report are closing prices of the day before publication unless a different
date is stated. With regard to unlisted securities median market prices are
used based on various important broker sources (OTC-Market).
Disclaimer This publication has been prepared and published by Silvia
Quandt Research GmbH, a subsidiary of Silvia Quandt&Cie. AG. This
publication is intended solely for distribution to professional and
business customers of Silvia Quandt&Cie. AG. It is not intended to be
distributed to private investors or private customers. Any information in
this report is based on data obtained from publicly available information
and sources considered to be reliable, but no representations or guarantees
are made by Silvia Quandt Research GmbH with regard to the accuracy or
completeness of the data or information contained in this report. The
opinions and estimates contained herein constitute our best judgement at
this date and time, and are subject to change without notice. Prior to this
publication, the analysis has not been communicated to the analysed
companies and changed subsequently. This report is for information purposes
only;it is not intended to be and should not be construed as a
recommendation, offer or solicitation to acquire, or dispose of, any of the
securities mentioned in this report. In compliance with statutory and
regulatory provisions, Silvia Quandt&Cie. AG and Silvia Quandt Research
GmbH have set up effective organisational and administrative arrangements
to prevent and avoid possible conflicts of interests in preparing and
transmitting analyses. These include, in particular, inhouse information
barriers (Chinese walls). These information barriers apply to any
information which is not publicly available and to which any of Silvia
Quandt&Cie. AG and Silvia Quandt Research GmbH or its affiliates may have
access from a business relationship with the issuer. For statutory or
contractual reasons, this information may not be used in an analysis of the
securities and is therefore not included in this report. Silvia Quandt&Cie. AG and Silvia Quandt Research GmbH, its affiliates and/or clients may
conduct or may have conducted transactions for their own account or for the
account of other parties with respect to the securities mentioned in this
report or related investments before the recipient has received this
report. Silvia Quandt&Cie. AG and Silvia Quandt Research GmbH or its
affiliates, its executives, managers and employees may hold shares or
positions, possibly even short sale positions, in securities mentioned in
this report or in related investments. Silvia Quandt&Cie. AG in
particular may provide banking or other advisory services to interested
parties. Neither Silvia Quandt Research GmbH, Silvia Quandt&Cie. AG or
its affiliates nor any of its officers, shareholders or employees accept
any liability for any direct or consequential loss arising from any use of
this publication or its contents. Copyright and database rights protection
exists in this publication and it may not be reproduced, distributed or
published by any person for any purpose without the prior express consent
of Silvia Quandt Research GmbH. All rights reserved. Any investments
referred to herein may involve significant risk, are not necessarily
available in all jurisdictions, may be illiquid and may not be suitable for
all investors. The value of, or income from, any investments referred to
herein may fluctuate and/or be affected by changes in exchange rates. Past
performance is not indicative of future results. Investors should make
their own investment decisions without relying on this publication. Only
investors with sufficient knowledge and experience in financial matters to
evaluate the merits and risks should consider an investment in any issuer
or market discussed herein and other persons should not take any action on
the basis of this publication.
Specific notices of possible conflicts of interest with respect to issuers
or securities forming the subject of this report according to US or English
law: None
This publication is issued in the United Kingdom only to persons described
in Articles 19, 47 and 49 of the Financial Services and Markets Act 2000
(Financial Promotion) Order 2001 and is not intended to be distributed,
directly or indirectly, to any other class of persons (including private
investors). Neither this publication nor any copy of it may be taken or
transmitted into the United States of America or distributed, directly or
indirectly, in the United States of America.
Frankfurt am Main, 30.06.2011
Silvia Quandt Research GmbH
Grüneburgweg 1860322 Frankfurt
Tel: + 49 69 95 92 90 93 -0
Fax: + 49 69 95 92 90 93 - 11
End of Corporate News
---------------------------------------------------------------------
30.06.2011 Dissemination of a Corporate News, transmitted by DGAP - a
company of EquityStory AG.
The issuer is solely responsible for the content of this announcement.
DGAP's Distribution Services include Regulatory Announcements,
Financial/Corporate News and Press Releases.
Media archive at www.dgap-medientreff.de and www.dgap.de
---------------------------------------------------------------------
130429 30.06.2011
Datum: 30.06.2011 - 16:33 Uhr
Sprache: Deutsch
News-ID 34512
Anzahl Zeichen: 0
contact information:
Kategorie:
Business News
Diese Pressemitteilung wurde bisher 177 mal aufgerufen.
Die Pressemitteilung mit dem Titel:
"DGAP-News: Silvia Quandt&Cie. AG, Merchant&Investment Banking: In-between the lines - Bernhard Eschweiler"
steht unter der journalistisch-redaktionellen Verantwortung von
Silvia Quandt&Cie. AG, Merchant&Investment Banking (Nachricht senden)
Beachten Sie bitte die weiteren Informationen zum Haftungsauschluß (gemäß TMG - TeleMedianGesetz) und dem Datenschutz (gemäß der DSGVO).
