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Some numbers ...

Sunday, March 22, 2020 2:58

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Just a few numbers this morning that are causing the grey cells to spark. First, the news story that Germany has broken its ‘balanced budget’ dirge and has committed to €356bn of new debt – some 10% of GDP. Already Europe is preparing for a forthcoming ‘fire sale’ of some of its largest industrial assets – and British hawks are circling, hoping to pluck up some tasty morsels. With Europe’s Bourses having fallen 30% – 40% in recent weeks, many are on the edge. The protective Germans know the risk -

“We will not allow a bargain sale of German economic and industrial interests,” economic affairs minister Peter Altmaier said on Friday. “There should be no taboos. Temporary state aid for a limited period, up to and including shareholdings and takeovers, must be possible.”

You’ll note that it is the risk to German and not EU assets that has prompted the volte-face. Some solidarity, mein Herren. Just for comparison, here are the global benchmarks of 10% of GDP ($s)

	GDP $bn	10% bench $bn
USA	20,490	2,049
China	13,400	1,340
Japan	4,970	497
Germany	4,000	400
UK	2,830	283
France	2,780	278
India	2,720	272
Italy	2,070	207
Brazil	1,870	187
Canada	1,710	171

But Germany faces a dilemma. Save the Zombie banks or allow the stressed carmakers to use their liquidity to develop EV technologies? QE has left many big companies with fat cash reserves, and even German taxpayers will grumble if hard-working Max Musterman’s wedge is thrown to VW whilst they are still sitting on their own cash-pile. Here’s another chart

So VW hanging in there with a market cap of $52bn … but here’s where it gets interesting. As Bloomberg reports, VW is already sitting on a cash pile of $23bn – over 5% of the entire German chancellor’s spending commitment. And the company would rather lay-off staff and close plants than spend it – foreign plants and workers to go first – as CE Herbert Diess was quoted as saying

“Drastic measures to protect liquidity” are required to tackle the crisis, Diess said Saturday in a message on VW’s intranet and later posted on LinkedIn. He said safeguarding the availability of spare parts and battery-cell supply are among the initiatives that are also “extremely important.”

How this will play with German voters I don’t know. But it’s all getting quite interesting. One of the downsides of industrial socialism is that taxpayers will want a say in what is being done with their money.

Source: http://raedwald.blogspot.com/2020/03/some-numbers.html

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