By Abdulselam Durdak
Frankfurt Letter, week beginning Jan. 23

- Last weeks’ highlight: Draghi and Trump

Last week there were two important issues on the agenda of the Eurozone and Germany. The first was new U.S. President Donald Trump’s tax statement for German automakers, and the other was the European Central Bank meeting in Frankfurt.


- ECB keeps monetary policy unchanged

At last weeks' ECB meeting, the governing council decided that the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.00, 0.25 and -0.40 percent respectively.

With regards to non-standard monetary policy measures, the council confirmed that it will continue to make purchases under the asset purchase program (APP) at the current monthly pace of €80 billion until the end of March 2017 and from April 2017, the net asset purchases are intended to continue at a monthly pace of €60 billion until the end of December 2017, or beyond if necessary, and in any case until the governing council sees a sustained adjustment in the path of inflation consistent with its inflation aim.

As widely expected, January's ECB meeting did not deliver any changes. President Mario Draghi made it very clear that the increase in headline inflation, which is due to continue in the months ahead, is largely the result of base effects driven by energy and food prices and maybe only temporary.

The ECB reiterated that it stands ready to expand its asset purchases in size and duration as required.


-Trump alarms German carmakers

Trump gave an interview to the German Bild newspaper last week in which he threatened German automakers with a hefty import tax if they plan to sell cars in the United States that were built in other countries.

In a translated interview, the newspaper quoted Trump as saying: "If you want to build cars in the world, then I wish you all the best. You can build cars for the United States, but for every car that comes to the U.S., you will pay 35 percent tax.


- German authorities react to Trump's statements

Vice Chancellor Sigmar Gabriel told Bild that “the American car industry will be worse, weaker and more expensive” if Trump were to levy a 35 percent tax on German cars. He added it would also hurt U.S. carmakers if components were subject to higher duties.

Trump had also complained that more German cars could be seen on the streets of New York than U.S. cars on German streets. Gabriel responded that "the U.S. will have to build better cars" if they want to change that.

German Association of the Automotive Industry President Matthias Wissmann said in a statement that it was unclear whether Trump's tariff threat would turn into policy, and whether such a policy would have the political support to pass through Congress.

Carl Martin, president of the German Machinery and Systems Manufacturers Association, also criticized Trump and said, "This is a challenge to free trade. We are anxious about this."

In the country, some consider that Trump will leave his conservative discourses in his presidency, while others call to engage in a dialogue with the new president.




23 Jan,2017