Newsletter April 2017

In the recent past, the credibility of the Stability and Growth Pact (SGP) has increasingly suffered from the European Commission's broad interpretation of SGP regulations. Up until now, political forbearance has prevented sanctions from being imposed according to the rules. The European Fiscal Board (EFB), which was set up by the EU Commission in 2016, offers opportunities for improvement. In cooperation with international research partners, the Mannheim Centre for European Economic Research (ZEW) investigated how the EFB functions and made proposals how to strengthen the EFB in its role as an impartial counterpart to the European Commission.

Today, these proposals were presented at the ZEW Lunch Debate entitled "Making the Most of the European Fiscal Board" in Brussels.

60 years ago in Rome, Germany, France, Italy, Belgium, the Netherlands and Luxembourg signed a treaty establishing both the European Economic Community and the European Atomic Energy Community. Following on from the founding of the European Coal and Steel Community in 1951, the treaty signed in Rome represented the next fundamental step towards European integration through the establishment of a customs union and a common market. It is fascinating now to look back on the conditions under which the Treaty of Rome came to be.

Whilst life expectancy is on the rise in Germany, demographic change lags behind. Between these two trends yawns the pension gap: the difference between the net earned income a person is accustomed to and their pension benefits after retirement. Despite measures such as the Riester pension, it is clear that, for much of the current workforce, pension benefits won't be enough to maintain their customary standard of living in retirement. ZEW research associate Martin Weber makes the case for investing in the capital market as a supplement to statutory and company pensions to provide for old age.

How are our lives being transformed by flexible working conditions? What effect is ubiquitous working having on our well-being? And how can we strike a healthy work-life balance? These are some of the questions that ZEW has been investigating as part of a project on "Ubiquitous Working" carried out in cooperation with the Leibniz Research Centre for Working Environment and Human Factors (IfADO) and the Leibniz-Institut für Wissensmedien (IWM).

On 23 and 24 March 2017 around 40 participants from a range of disciplines from business studies, economics and computing to psychology and sociology attended the project's interdisciplinary closing conference in Mannheim to discuss the more flexible ways of working which have been made possible thanks to digital technology.

The 500 biggest family firms in Germany have a substantial stake in the German economy. The number of people employed by these companies both in Germany and worldwide has increased in the years between 2006 and 2015. These are the findings of a recent study entitled "The Economic Importance of Family Enterprises" which is carried out regularly by the Mannheim Centre for European Economic Research (ZEW) and the University of Mannheim's Institute for SME Research (Institut für Mittelstandsforschung, ifm) on behalf of the Foundation for Family Businesses in Germany and Europe.

Professor emeritus Gebhard Kirchgässner, a member of the Scientific Advisory Council at the Centre for European Economic Research (ZEW) for many years and professor emeritus at the University of St. Gallen, died on 1 April 2017 at the age of 68 following a prolonged illness. With his passing ZEW has lost an outstanding, highly active member of the Scientific Advisory Council.

Christian Spindler is a visiting researcher in ZEW’s Research Group Competition and Regulation from 1 April till 14 May 2017. He is a doctoral candidate at the Chair of Industry, Energy & Environment of the Faculty of Business, Economics and Statistics at the University of Vienna. His research focuses on applied microeconomics, energy economics, electricity markets, and industrial organization. During his time at ZEW, he will be studying the role of prosumers in electricity markets, which are market participants acting as both consumer and producer at the same time.

Professor Seung-yeon Won is a visiting researcher in ZEW’s Research Department Economics of Innovation and Industrial Dynamics from 3 March to 26 May 2017. He is an associate professor at the Department of Business Administration at Myongji University in Seoul, South Korea. During his stay at ZEW, he analyses the innovations of small and medium-sized companies (SME) in Germany, using data of the Mannheim Innovation Panel (MIP) amongst others.

According to the current survey for April (5 April – 19 April 2017), the economic outlook for China has improved by 3.2 points. The CEP Indicator, which reflects the expectations of international financial market experts regarding China’s macroeconomic development over the coming twelve months, is currently at 17.7 points (March 2017: 14.2 points). This is the third consecutive time that the indicator rises. As a result, the CEP Indicator has now significantly exceeded the long-term average of 5.4 points. Due to this development, the highest level recorded since the introduction of the survey (21.4 points in June 2014) seems to be within reach.

Over the course of the next few weeks, US President Donald Trumps will finally have to take a stand regarding his tax policy plans. He had announced a "historic tax reform", the details of which he now plans to specify. Against this backdrop, Professor Christoph Spengel and Professor Friedrich Heinemann examined the US tax plans of the Republican Party in a study by the Mannheim Centre for European Economic Research (ZEW). Their message: If Trump translates these plans into actions, this could lead to an international fiscal chaos with unforeseeable consequences for trade, investment, and exchange rates.

Although the UK has now officially decided to leave the European Union, British companies continue to be highly attractive to foreign companies. Judging by the number of mergers and acquisitions (M&A) of British companies, M&A activities have apparently remained largely unaffected by the Brexit vote in June 2016 since neither a drop nor an increase in M&A was witnessed. By contrast, the financial volume of M&A transactions reached an absolute record high following the Brexit vote. These are the findings of studies carried out by the Mannheim Centre for European Economic Research (ZEW) on the basis of the Zephyr database of Bureau van Dijk.

The volume of mergers and acquisitions (M&A) between Turkish and EU companies (EU-28, including Croatia and United Kingdom) decreased significantly in 2016. This development may possibly be due to political tensions as well as the fact that Turkey's prospects of accession to the European Union have worsened considerably. These are the findings of studies carried out by the Mannheim Centre for European Economic Research (ZEW) on the basis of the Zephyr database of Bureau van Dijk.

The ZEW Indicator of Economic Sentiment for Germany increased substantially by 6.7 points in April 2017. The indicator now stands at 19.5 points, thereby reaching its highest level since August 2015. Though the long-term average as calculated from the beginning of the survey (December 1991) is yet to be beaten, these results are comparable to the expectations prior to the Brexit vote in June 2016. "The German economic situation has proved fairly robust in the first quarter. This is highlighted by the solid figures for growth in industrial production, the construction sector and retail sales from February.

In addition, the consistently high labour demand has boosted private consumption. The financial market experts expect this positive development to continue," comments ZEW President Professor Achim Wambach.

According to the ZEW-ZEPHYR M&A Index, mergers and acquisitions (M&A) involving German businesses continue the upward trend seen in the previous months. The index, which is based on the number of completed M&As per month, climbed to 132 index points in January, kicking off 2017 on a very positive note. The only time the index exceeded this level was in January 2016, when the ZEW-ZEPHYR M&A Index recorded a monthly average of 133 points. The moving twelve-month average of the M&A Index has also grown continually.

The index currently reads 98 points (as of January 2017) and is thus on the verge of exceeding the 100-point mark for the first time since 2009. These are the findings of studies carried out by the Mannheim Centre for European Economic Research (ZEW) on the basis of the Zephyr database of Bureau van Dijk.

Innovative firms in Berlin are trying to get as close to research as they can. Berlin's innovation hotspots for businesses are often located in the immediate vicinity of institutions of higher education and research facilities. This is certainly the case for the area surrounding the Technical University of Berlin and the districts of Adlershof and Buch. Innovative firms are, on average, surrounded by 80 per cent more researchers within a radius of 50 metres than non-innovative firms. However, the further we expand the radius, the less significant this difference becomes. For example, within a 250-metre radius innovative firms are surrounded by only 40 per cent more researchers.

An innovative firm's direct geographical proximity to research is thus a decisive factor. These are the findings of a study carried out by the Mannheim Centre for European Economic Research (ZEW) in cooperation with Professor Knut Blind at TU Berlin with support from Technologiestiftung Berlin.

The increasing protectionism of the US government could intensify trade relations between Germany and China. Business executives of German companies operating in China expect the two countries to grow closer in the future. Two thirds anticipate that German-Chinese trade relations will intensify. Meanwhile, only 13 per cent of those surveyed predict that the Chinese government will offer something along the lines of a "China First" response to the situation in the USA. These are the findings of the current ZEW-PwC China Economic Barometer, a survey carried out by the Mannheim Centre for European Economic Research (ZEW) together with the accounting and consulting firm PricewaterhouseCoopers (PwC) on a quarterly basis among business executives of German companies operating in China. 44 executives took part in the most recent survey.

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Zareh Asatryan, Xavier Debrun, Friedrich Heinemann, Michal Horvath, Ľudovít Ódor and Mustafa Yeter
Making the Most of the European Fiscal Board

Friedrich Heinemann and Christoph Spengel
Republican Tax Plan Would Destabilize Global Trade and Taxation

Daniel Erdsiek
Dynamics of Overqualification: Evidence from the Early Career of Graduates

Rainer Bräutigam; Katharina Nicolay; Christoph Spengel
Entwicklung eines Indifferenzsteuersatzes für den European Tax Analyzer (Development of an Indifference Tax Rate for the European Tax Analyzer)

Rainer Bräutigam, Verena Dutt, Maria Theresia Evers, Friedrich Heinemann and Christoph Spengel
Länderindex Familienunternehmen – Erbschaftsteuer im internationalen Vergleich (Family Businesses Country Index – International Comparison of the Inheritance Tax)

2017 Data Report on Innovation Behaviour of Saxony's Economy

Adaptation Strategies and Policy Implementation for Sharing Responsibility in Managing Mountain Hazards (SHARED)

Crises Resilience – An Interdisciplinary Development of the Term of Resilience in Relation to Economic and Financial Crises (WGL - HSFK)

Digitization and Changing World of Work: A Data Basis for Interdisciplinary Socio-Political Research

Evonik-Specific Early Warning System: Monthly Updates (2017-2019)

Framework for the Analysis of Research and Adoption Activities and Their Macroeconomic Effects

How Do Tax Subsidies Shape Savings Decisions of Households?

Market Power and Innovation in Online Markets: The Role of Network Effects and Big Data

MATAX Tax Influence on Financial Structures of M&As

Measuring Competitiveness

Resilience Against Crises from Export Shocks – Concept, Quantification and Strategy (Bertelsmann Stiftung)

Short-Term Economic and Social Effects of Humanitarian Immigration

Transfer of Research Results and Knowledge in the Context of European R&I Policies

US Tax Reform Proposals – Implications and Evaluation

Speaker: Prof. Andrew F. Daughety, PhD (Vanderbilt University, Nashville), Prof. Jennifer F. Reinganum, PhD (Vanderbilt University, Nashville)
Location of the event: ZEW, Mannheim

Speaker: Luke Haywood, PhD (OECD & DIW Berlin)
Location of the event: ZEW, Mannheim

Location of the event: ZEW, Mannheim

Speaker: Michele Battisti, PhD (Ifo Institute Munich)
Location of the event: ZEW, Mannheim

Location of the event: ZEW, Mannheim

Location of the event: ZEW, Mannheim

Speaker: Prof. Andrew J. Oswald, PhD (University of Warwick)
Location of the event: ZEW, Mannheim

Speaker: Dr. Davud Rostam-Afschar (University of Hohenheim)
Location of the event: ZEW, Mannheim

Location of the event: Cala Liberotto/Orosei (Sardinia), Italy

Location of the event: ZEW, Mannheim

Location of the event: ZEW, Mannheim

Speaker: Prof. Dr. Matthias Sutter (University of Cologne)
Location of the event: ZEW, Mannheim

Location of the event: ZEW, Mannheim

Picture Credits: Press Release of 27 April 2017: iStock.com/VanderWol Press Release of 21 April 2017: iStockphoto/400tmax, Press Release of 30 March 2017: iStock.com/LeoPatrizi, News Article of 29 March 2017: iStock.com/Yuri Arcurs
 
All further pictures: ©ZEW