Economic Hegemony

BERLIN (Own report) - Record profits in the billions strengthen the position of German enterprises in their global expansion. This was learned from analyses and enterprise balance sheets, that were recently made public. According to expert reports, it is to be expected that in the next 18 months, numerous foreign companies, particularly in Europe, will be taken over by their German competitors. The German economic expansion is supported by new tax privileges and accompanied by additional financial burdens on private households valued at approximately 40 billion Euros. Also the, far below the EU average, wage increases assist in the capitalization of world-wide takeover projects. These measures pay off: over the past ten years German enterprises were able to increase their share of the Euro-zone market by more than one-quarter and by nearly double in comparison to their French rivals. This is two-and-one-half times more than that of the Italian economy.

Tendency Rising

According to current prognoses, German enterprises are approaching their third successive year of record profits. Already in the expired 2005 business period, more than 130 industry, commercial and service companies in the four leading German stock exchange indexes increased their net profits by an average of 30 percent, the returns likewise rose sharply, with a plus of 5.8 percent. This year the experts are again optimistic. The financial data specialist, Factset JCF, expects that the companies represented on the most important German stock index, DAX, will increase their net margins by 12.6 percent, and that for those companies on the M-DAX (medium sized enterprises) even a 34 percent profit increase is being forecast. According to Factset, the DAX companies could grow even more strongly in 2007. Experts predict a profit increase of 13 percent. "The prognoses are stable, with tendency rising" is the formulation used.[1]

Records

The now submitted quarterly and mid-yearly reviews confirm these prognoses. Above average growth rates are registered in particular by the finance companies, Deutsche Bank (profit before taxes rose approx. 32 percent to 1.9 billion Euros, in comparison to the second quarter of 2005) and the Alliance Group (profit increase of around 64 percent to 2.3 billion Euros). Also the German stock exchange registered a record quarter between April and June, for the second time in sequence, (operational profit: 291.4 million Euros, an increase of 67 percent). The surplus for the reinsurance company, Münchener Rück, for the period from January to the end of June 2006 was 2.2 billion Euros - more than twice that for the same period last year. The BMW car manufacturer improved its pretax profits by 44.5 percent to 2.5 billion Euros in the first six months. BASF, the world's largest chemical enterprise, increased its operating results, without special influences, by 17 percent, to reach 3.8 billion Euros. According to data, the Fresenius Medical Care, a health service company, enhanced its proceeds by 29 percent to just short of 2.2 billion US-Dollars in comparison to the same time span one year ago.[2]

Advantages

The extremely high profits of German enterprises are reflected also in tax receipts. According to the latest Ministry of Finance statistics, the tax offices will be taking in more corporate and trade tax than ever before. Experts predict that by the end of the year, 53 - 56 billion Euros will be paid into the treasury, more than in the "new economy" boom period: in 1999 and 2000 enterprises paid respectively around 50 billion Euros in corporate and trade taxes into the German state's coffers.[3] In order to allow a portion of these profits to remain at the disposal of global economic expansion, the German government, in its planned tax reform, intends to relieve the enterprises of five billion Euros in taxes, while, according to Commerzbank estimates, over the next three years, private households will have extra tax burdens imposed amounting to approximately 40 billion Euros. Already now, employees of German companies are substantially contributing to the stabilization of the German economic location through wage waivers. The trade union affiliated Institute of Economics and Social Sciences, (WSI) predicts a rise in labor costs of only around 0.8 percent for Germany, whereas the enterprises of all other EU states must pay an approximate average increase of 2.8 percent in wages, salaries and associated employer outlays over what was paid in 2005. It is reasoned that due to the weak wage development in comparison to that of other countries, German exports conquered larger shares of the international market, thus improving the German standing on the world market.[4]

Record Breaking

In view of its record profits, Germany's major enterprises have had a "takeover fever" diagnosed. With the volume of transactions world-wide in the first half of 2006 at 41 percent above that of the preceding year, the mergers and acquisitions (M and A) development in Germany has become nearly explosive. The volume of enterprise purchases exceeded the level for the same period the preceding year by 120 percent. The audit and consulting firm, KPMG, predicts in its new study that the global wave of takeovers and fusions will also continue in the second half of the year: "the M and A-year 2006 will presumably break all records".[5]

Company Hunter

Increasingly German enterprises are being seen as "company hunters". According to the estimates of the Swiss bank UBS, this year, for the first time since 1998, the value of takeovers by German enterprises have exceeded that of German companies taken over. "The German enterprises have gone from the hunted to become the hunters", explained an UBS M and A-specialist. This trend will also continue in the coming years, predicts the UBS Investment Banking director. In the next 18 months a large number of transactions, valued at more than 30 billion Euros, are expected to take place in Europe. In many of these takeovers, German enterprises will emerge as buyers. Focus will be upon transnational purchases in the energy sector and in classical industries. According to UBS, since the beginning of the year, foreign enterprises have announced takeovers in Germany worth 20.4 billion US-Dollar - on the other hand German company heads plan international takeovers valued at 103.5 billion US-Dollar.

Hostile

The expansive German economic activities have not only become more extensive, but also more aggressive. German companies no longer balk at hostile takeovers. According to UBS data, nearly 65 percent of this year's bids by German enterprises were either hostile or at least unsolicited offers, among them the bid by Eon to the Spanish Endesa and that by the German stock exchange to the Paris Euronext.[6]

Undisputed

In the future Germany's leading economic position in the EU will continue to be fortified at the expense of the other member states. According to data from the French Observatory for Economic Conjunctures, OFCE, since 1995 German products in the Euro-zone have been able to increase their share of the market from 25.3 to 27 percent. During the same period Italy's share of the market went from 13 to 10.6 percent, and France's sank from 17.2 on 14.5 percent.[7] Germany is attaining an undisputed economic hegemony.

[1] Firmen winkt drittes Rekordjahr; Handelsblatt 26.06.2006. Deutsche Konzerne verdienen besser; Tagesspiegel 24.07.2006. See also Neue Dynamik
[2] Deutsche Bank: Gewinn vor Steuern im zweiten Quartal 2006 um 32% auf 1,9 Mrd Euro gestiegen; www.deutsche-bank.de 01.08.2006. Allianz Gruppe: Vorläufige Zahlen zum 2. Quartal 2006; www.allianz.com 03.08.2005. Deutsche Börse mit ausgezeichneten Ergebnissen im 2. Quartal 2006; deutsche-boerse.com 02.08.2006. Münchener-Rück-Gruppe: Hervorragendes Halbjahresergebnis; www.munichre.com 03.08.2006. Zwischenbericht zum 30. Juni 2006. BMW-Group mit starkem zweiten Quartal 2006; www.bmwgroup.com 02.082006. BASF mit Dynamik auf profitablem Wachstumskurs; corporate.basf.com/de 02.08.2006. Hervorragende Geschäftsentwicklung im zweiten Quartal 2006: Fresenius Medical Care erhöht Prognose für das Gesamtjahr; www.fmc-ag.de 03.08.2006
[3] Konzerne zahlen so viel Steuern wie nie zuvor; Süddeutsche Zeitung 21.07.2006
[4] Studie: Deutschland hat geringsten Anstieg der Lohnkosten in EU; Reuters 01.08.2006. Gewinne explodieren - Löhne stagnieren; Berliner Zeitung 03.08.2006. See also Voran
[5] Firmenjäger aktiv wie noch nie; Manager Magazin 20.07.2006. Fusions- und Übernahmefieber steigt; Die Welt 31.07.2006
[6] Deutsche Firmen gehen auf Einkaufstour; Handelsblatt 20.07.2006. Deutschlands Unternehmen im Übernahmefieber; Frankfurter Allgemeine Zeitung 20.07.2006. See also Wir kaufen alles, Durchbruch, A Grievous Set-Back and Erstickend
[7] Erfolge im Ausland; Berliner Zeitung 05.08.2006


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