German Unemployment Declines in May as Jobs Boom Expands

(Bloomberg) -- German unemployment fell in May for a 23rd straight month as export-driven growth and increased spending by businesses and consumers extended a jobs boom.

The number of people out of work dropped a seasonally adjusted 8,000 to 2.97 million, the Nuremberg-based Federal Labor Agency said today. Economists forecast a drop of 30,000, according to the median forecast of 30 estimates in a Bloomberg News survey. The jobless rate declined to 7 percent, the lowest since records for a reunified Germany began in 1991.

Declining unemployment in Europe’s biggest economy underscores German resilience in the face of a clampdown on budget deficits by euro-area governments buffeted by the debt crisis and rising fuel prices that crimp household spending. Retail sales edged up in April after declining in March, the Federal Statistics Office said today.

“The labour market party continues,” said Carsten Brzeski, an economist at ING Group in Brussels. “Even if the strong dynamics of new vacancies and employment expectations is currently slowing down somewhat, unemployment is bound to drop further.”

The euro was up 0.95 percent to $1.4413 as of 10:30 a.m. in Berlin.

Germany and neighboring France are driving euro-area growth even as countries such as Greece, that were forced to call for international bailouts, grapple with their debt burden.

BMW, Mini

The German economy may grow more than 3 percent for a second year in 2011 as it sustains a “robust” recovery, the International Monetary Fund said on May 17. German business confidence unexpectedly held steady this past month on the back of company investment and a rebound in construction. Economists had forecast a decline.

German carmakers are hiring because of booming demand in China for high-end vehicles. Bayerische Motoren Werke AG Chief Executive Officer Norbert Reithofer said on May 12 the Munich- based company will hire about 2,000 workers over the course of the year, more than half of them in Germany, “in light of strong global demand for BMW, Mini and Rolls-Royce brand vehicles.”

Siemens AG, Europe’s largest engineering company, said May 4 that profit will rise at least 75 percent this year as customers buy more industrial equipment.

Even so, signs are emerging that Germany’s labor market may be losing steam, said Timo Klein, an economist at Global Insight Inc. in Frankfurt.

‘A Cooling’

“It’s definitely looking better now than it was a half year ago,” Klein said in an interview. “But if you look at the current figures, in terms of economic activity, the indications are that we’re already seeing a bit of a cooling.”

The pace of Germany’s economic growth will probably slow by mid-year after jumping 1.5 percent in the first quarter, the Finance Ministry said May 20.

German output “was clearly lifted during the reporting period by backloading and catching-up effects,” the Frankfurt- based Bundesbank said the same day.

With retail sales increasing 0.6 percent in April from March, when they fell 2.7 percent, “the German consumer is hesitantly driving growth and picking up the economic relay baton from trade and investment,” said Christian Schulz, an economist at Joh. Berenberg Gossler & Co. in London.

OECD Comparisons

According to comparable data from the Organization for Economic Cooperation and Development, Germany’s jobless rate was 6.3 percent in March while the average for the 17 euro nations was 9.9 percent. France, the second-largest euro-area economy, had 9.5 percent unemployment, the U.S. 8.8 percent and Spain 20.7 percent.

Even so, joblessness at a 19-year low and buoyant economic growth has yet to translate into support for Chancellor Angela Merkel, whose Christian Democratic bloc dropped to match its year low of 30 percent in a Forsa poll for Stern magazine today.

Merkel’s coalition with the Free Democrats had 34 percent support compared with 50 percent for the opposition Social Democratic Party and Greens, who engineered a phase-out of nuclear power that Merkel emulated yesterday, the poll showed. Forsa polled 2,501 voters on May 23-27. The margin of error was as much as 2.5 percentage points.

Germany Bans Naked Short Selling

(Bloomberg) -- Germany will temporarily ban naked short selling and naked credit-default swaps of euro-area government bonds at midnight after politicians blamed the practice for exacerbating the European debt crisis.

The ban will also apply to naked short selling in shares of 10 banks and insurers that will last until March 31, 2011, German financial regulator BaFin said today in an e-mailed statement. The step was needed because of “exceptional volatility” in euro-area bonds, the regulator said.

The move came as Chancellor Angela Merkel’s coalition seeks to build momentum on financial-market regulation with lower- house lawmakers due to begin debating a bill tomorrow authorizing Germany’s contribution to a $1 trillion bailout plan to backstop the euro. U.S. stocks fell and the euro dropped to $1.2231, the lowest level since April 18, 2006, after the announcement.

“You cannot imagine what broke lose here after BaFin’s announcement,” Johan Kindermann, a capital markets lawyer at Simmons & Simmons in Frankfurt, said in an interview. “This will lead to an uproar in the markets tomorrow. Short-sellers will now, even tonight, try to close their positions at markets where they can still do so -- if they find any possibilities left at all now.”

Merkel, Sarkozy

Merkel and French President Nicolas Sarkozy have called for curbs on speculating with sovereign credit-default swaps. European Union Financial Services Commissioner Michel Barnier this week called for stricter disclosure requirements on the transactions.

Allianz SE, Deutsche Bank AG, Commerzbank AG, Deutsche Boerse AG, Deutsche Postbank AG, Muenchener Rueckversicherungs AG, Hannover Rueckversicherungs AG, Generali Deutschland Holding AG, MLP AG and Aareal Bank AG are covered by the short-selling ban.

“Massive” short-selling was leading to excessive price movements which “could endanger the stability of the entire financial system,” BaFin said in the statement.

The European Union last month proposed that the Financial Stability Board, the group set up by the Group of 20 nations to monitor global financial trends, should “closely examine the role” of CDS on sovereign bond spreads. Merkel said earlier today that she will press the Group of 20 to bring in a financial transactions tax.

Merkel’s ‘Battle’

“In some ways, it’s a battle of the politicians against the markets” and “I’m determined to win,” Merkel said May 6. “The speculators are our adversaries.”

Germany, along with the U.S. and other EU nations, banned short selling of banks and insurance company shares at the height of the global financial crisis in 2008. The country still has rules requiring disclosure of net short positions of 0.2 percent or more of outstanding shares of 10 separate companies.

The disclosure of the rules drew criticism from lawyers who said that they should have been announced well ahead of time.

“The way it’s been announced is very irresponsible, and it’s sent many market participants into panic mode,” said Darren Fox, a regulator lawyer who advises hedge funds at Simmons & Simmons in London. “We thought regulators had learned their lessons from September 2008. Where is the market emergency that necessitates the introduction of an overnight ban?”

Short-selling is when hedge funds and other investors borrow shares they don’t own and sell them in the hope their price will go down. If it does, they buy back the shares at the lower price, return them to their owner and pocket the difference.

Credit-default swaps are derivatives that pay the buyer face value if a borrower -- a country or a company -- defaults. In exchange, the swap seller gets the underlying securities or the cash equivalent. Traders in naked credit-default swaps buy insurance on bonds they don’t own.

A basis point on a credit-default swap contract protecting $10 million of debt from default for five years is equivalent to $1,000 a year.