How big are German fiscal multipliers? 🧵

Quite big: 1.0 for infra/defence and 0.2 for EZ spillovers, *at least*

For starters, the proposed package is very large in historical context. 1/ Prior to 2008-09 crisis, consensus had German fiscal multipliers around 0.6-0.7. But studies glossed over the state-dependent nature of multipliers and differences in fiscal tools. Since then, literature has shown that output multipliers are larger in certain conditions: 2/

Summarizing the #DraghiReport as “Germany should pay for others” is absurd and ignores basic data.

Germany would be a top beneficiary of the plan.

Charts from my note earlier this week👇1/n Unlike in the past, structural headwinds now affect Germany more than the EA 'periphery' because of Germany’s overexposure to manufacturing and exports.

First, China turned from key export market into fierce industrial rival in the auto sector and across advanced industries. 2/n

EU “deindustrialization” makes headlines.

High energy costs, China’s rivalry and rising protectionism are strong headwinds.

But structural factors cannot fully explain the ongoing industrial recession.

What about ECB-induced domestic demand suppression and housing collapse? 1/ First, the fall in German and EA intermediate goods orders (most relevant for energy-intensive output), has been steeper than for other foreign orders. And it has continued despite the drop in energy/input costs, and easing supply bottlenecks.

Second, EA housing collapsed. 2/

Glad this thread gave people some food for thoughts and an out-of-consensus view on Euro Area long-term growth and assets.

But what about the *short-term* macro view (say, 1 year)?

Spoiler: stagnation writ large. New chart-heavy🧵1/

https://twitter.com/DavideOneglia/status/1668548071267917824?s=20

The EA heads for cyclical stagnation: fade ultra-bears talking about rising risks of “deep recession”, but dropping industrial orders and retail sales since March simply confirm EA underlying growth weaknesses 2/

Confused about Euro Area's long-term macro? Overwhelmed by negative consensus and headlines? Well, it's time to consider the long-term bull case for Europe. Chart-heavy 🧵 1/ No doubt, the old export-led EA growth model is dead. The EA is losing competitiveness. First, China is turning from key export market into industrial rival. A big problem for overexposed EA economies and firms 2/

With the bank turmoil of the past weeks investors have reawakened to credit risk. So far, banks’ exposure to Commercial Real Estate (CRE) has attracted most of the attention. But CRE is just one example of rate-sensitive, illiquid, opaque asset class. Little thread 1/ In EU, banks’ credit risk via CRE concentrates in the Nordics and Central Europe. Sweden tops the table, but, in the EZ, fixed-rate mortgages make Germany, the Netherlands and France less exposed (although more exposed in terms of loan profitability!) than Austria and Finland 2/

This (quite long) thread is #my2cents on the output gap campaign #CANOO started by @RobinBrooksIIF and supported, among many others, by @alan_tooze and @MESandbu . Pls read it till the end. I don't want to be polemic. I'm just looking for answers (1/x)

https://twitter.com/RobinBrooksIIF/status/1138422290683744261

In EU this is a vital *political* debate. Given the well-known output gap measurement issues especially in real-time, references to 'cyclically-adjusted' fiscal balances in budgetary rules at EU level and in member states are a serious problem (2/x)