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Japan’s Abe abandons contentious labour reform after flawed data



Japanese Prime Minister Shinzo Abe has abandoned for now a key labour law reform aimed at boosting productivity after admitting data used to support the change was flawed, an embarrassing political climb-down likely to disappoint businesses and investors.

Abe had pledged to pass in the current session of parliament, set to end in June, a package of reforms to increase labour market flexibility and allow a more efficient allocation of resources, a core part of his “Abenomics” recipe for growth.

But after weeks of defending the reforms against opposition attack after the government admitted some supporting data was flawed, Abe confirmed on Thursday that one of the most contentious parts of the package would be dropped for now.

The change would have expanded a system of “discretionary labour” where employees are regarded as having worked a certain number of hours and paid a fixed wage regardless of how long they actually work. The flawed data related primarily to this proposal.

“We’ve decided to delete every single element of discretionary labour from the reform bills at this time and have the labour ministry grasp the actual situation once more, and then to debate over again,” Abe told the upper house budget committee, confirming remarks to reporters late on Wednesday.

Abe came to office in December 2012 promising to revive the economy with “three arrows” of his “Abenomics” policies: hyper-easy monetary policy, fiscal spending and structural reforms. Critics say he has lagged on the third part of this agenda.

“In economic terms, labour reform was going to be the core of the productivity ‘revolution’ that he was going to engineer,” said Jesper Koll, head of equity fund WisdomTree Japan. “When you ask ‘what else is there?’, the answer is a yawning emptiness.”

Another part of the package would expand the categories of highly skilled and highly paid professions with no limits on their working hours. That provision remains for now, but is already facing similar opposition attacks. Some members of Abe’s Liberal Democratic Party favour cutting out this provision, too.

“Abe is trying to spin in such a way that he can put the blame on the labour ministry bureaucrats, but the fact that he is forced to abandon one of the central pieces of his incoherent compromise bundle of bills will entail a greater consequence than he would like to admit at this point,” said Koichi Nakano, a political science professor at Sophia University.

“This is not going to be the end of opposition and media scrutiny and criticisms.”

Also included in the proposed reforms is a legal cap on overtime of 100 hours per month — an effort to end phenomenon of “karoshi” — or death from overwork.

Critics on one side of the debate have said that cap would effectively condone a level of overtime that is harmful to workers’ health. On the other side, some economists say setting the cap reduces management flexibility.

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Volkswagen earnings Q2 2021



Technicians work in the assembly line of German carmaker Volkswagen’s electric ID. 3 car in Dresden, Germany, June 8, 2021.

Matthias Rietschel | Reuters

Volkswagen posted record first-half earnings on Thursday while also raising its target for profit margin.

The results are a marked improvement from the same period last year when demand was ravaged at the height of the Covid-19 pandemic.

The German automaker saw first-half operating profit before special items hit 11.4 billion euros ($13.5 billion), exceeding pre-pandemic levels on the back of increased demand for premium cars in Europe and the Americas, while electric vehicle deliveries almost tripled.

As a result, Volkswagen upped its profit margin target for the second time in three months. The company now expects an operating return on sales of between 6% and 7.5%, having previously projected 5.5% to 7%.

“The record result in the first half of the year is clear proof of how strong our brands are and how attractive their products are,” CEO Herbert Diess said in a statement.

“The premium segment performed especially well with double-digit returns, as did Financial Services. Our electric offensive is picking up momentum.”

The group lowered its forecast for deliveries, however, amid “challenging market conditions.”

“Challenges will arise particularly from the economic situation, the increasing intensity of competition, volatile commodity and foreign exchange markets, securing supply chains and more stringent emissions-related requirements,” it said in the earnings report. Like many major automakers, Volkswagen is feeling the pinch from a global shortage of semiconductors.

Here are the quarterly highlights:

  • Second-quarter deliveries came in at 2.55 million vehicles, up from 1.89 million in the first half of 2020.
  • Quarterly group sales revenues were 67.29 billion euros, up from 41.08 billion euros for the same period last year.
  • Operating result before special items was 6.55 billion euros, up from -2.39 billion euros last year.

Half of Volkswagen’s sales are expected to be battery-electric vehicles by 2030, the German carmaker said in a recent strategy update, while almost 100% of its new vehicles in major markets should be zero-emission vehicles by 2040.

Those objectives are part of Volkswagen’s wider aim to be fully carbon neutral by 2050, and Volkswagen has earmarked 73 billion euros for the development of future technologies between 2021 and 2025, around 50% of the company’s total investments.

Volkswagen stock is up more than 34% year-to-date.

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Rent controls are becoming a highly divisive issue in Europe



In front of the criminal court in Moabit, supporters of a left-wing housing project in Köpenicker Straße protest against its eviction. A woman holds a sign with the English inscription “A roof or your head a basic human right”.

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 LONDON — Rent controls are becoming increasingly popular in many European nations, but experts note that they rarely solve housing crises on their own and can even scare investors away.

Rent controls are government policies, whether on local or a national level, that aim to cap house price increases. They are intended to keep housing affordable, at least for the most vulnerable parts of a population. However, the policy has its critics.

In Sweden, for example, rent controls effectively toppled the government there. In Germany, the matter was subject to a year-long legal battle. Meanwhile, lawmakers in the Netherlands, the U.K. and Ireland have all had similar discussions about their property markets.

The root causes

Speaking about lofty prices in the Netherlands, Nic Vrieselaar, a senior economist at RaboResearch, told CNBC that the market is “becoming unacceptable.” “This is a matter of supply-demand due to the low interest rate environment,” he said.

There’s an age-old trend of people flocking to urban areas where there’s more jobs and higher salaries. But, at a time of low interest rates from central banks — which European nations have experienced in the wake of the sovereign debt crisis — and help-to-buy schemes, more people have bought property, either as a first home or as an investment to let. This demand then pushes up prices given the limited housing stock on the market.

High-rise buildings in the Märkisches Viertel in Berlin.

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In addition, the so-called “Airbnb effect” has worsened the situation, experts note. Rather than selling a property or letting it out long term, many landlords choose to make their houses or apartments available for short stays. This then means there’s less stock for the locals, thus contributing to a further acceleration of rental prices.

Between 2010 and the first quarter of 2021, rents increased by 15.3% in the European Union, according to Eurostat.

Separate data gathered by Europe’s statistics office showed that, in 2020, the estimated average rent levels for apartments was the highest in Dublin, followed by Copenhagen, then Paris, Luxembourg and Stockholm.

Colm Lauder, head of real estate at investment bank Goodbody, told CNBC that he expects rental prices to keep rising. He said: “In Ireland, we are concerned that [rent] controls will stop capital coming through.”

A vicious cycle

Property investors see a significant downside in rent controls in that they cap returns. In the case of Ireland, rent increases in certain areas are limited at 4% per year.

“If they can’t get [returns] then they will look elsewhere,” Lauder said.

Private investment plays a crucial role in supporting the housing market, by promoting construction and refurbishment. If investors find higher returns in other nations, they are likely to shift their funds there and supply will remain limited in that initial market.

However, not everybody agrees with this view.

Barbara Steenbergen, a member of the International Union of Tenants and former lawmaker for the German region of Cologne, told CNBC: “We are of course pro rent controls if it’s part of a comprehensive housing package.”

She highlighted how important rent controls are for low and middle-income families, noting that in Berlin, for example, rent increases have gone up exponentially, but salaries have not.

This divide is a “threat to social peace,” she said, while adding that she has not seen investment fleeing in any market that has rent controls. One of the challenges is that investors focus on luxury buildings and less on affordable and social housing, she said.

Ultimately, the solution may lay with the root of the problem.

“What I think needs to be done is increasing supply,” Vrieselaar said.

In a statement published in 2018, the European Central Bank noted that “housing completions in the euro area have remained substantially below their average level since the start of monetary union” in 1999. In addition, the ECB also said that the lack of building permits and labor shortages have been a constraint in improving supply. 

But Vrieselaar suggested that governments should change the way they tax the sector, so they can better tackle the housing crisis. Essentially, he believes that the Netherlands should tax people’s wealth more, including their second and third homes and lower the burden on people’s incomes so tenants have more room to spend on their rent.



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Credit Suisse Q2 2021 earnings



Credit Suisse bank.

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LONDON — A Credit Suisse investigation into its dealings with the collapsed U.S. hedge fund Archegos Capital revealed Thursday that the Swiss bank had failed “to effectively manage risk.”

The bank’s financial results have been heavily overshadowed by heavy losses following the scandal involving Archegos earlier this year.

“The investigation found a failure to effectively manage risk in the Investment Bank’s Prime Services business by both the first and second lines of defense as well as a lack of risk escalation,” Credit Suisse said as it published the report of the independent external investigation.

“It also found a failure to control limit excesses across both lines of defense as a result of an insufficient discharge of supervisory responsibilities in the Investment Bank and in Risk, as well as a lack of prioritization of risk mitigation and enhancement measures,” the bank also said.

Nonetheless, the investigation concluded that there had not been “fraudulent or illegal conduct” nor ill intent from its side and its employees.

In the wake of the sandal, the head of its investment bank, Brian Chin, and chief risk and compliance officer, Lara Warner, stepped down. The executive board decided to waive bonuses for the 2020 year, and also cut the proposed dividend.

António Horta-Osório, chairman of Credit Suisse, said Thursday: “While the bank has already taken a series of decisive actions to strengthen the risk framework, we are determined to learn all the right lessons and further enhance our control functions.”


The outcome of the investigation was published at the same time as the Swiss lender reported its second-quarter results.

Credit Suisse said its net income reached 253 million Swiss francs ($278.3 million) for the three-month period ending June, missing expectations in its own poll of analysts. The stock is down 17% year-to-date.

At the end of the first quarter, Credit Suisse reported a hit of 4.4 billion Swiss francs due to the Archegos saga. However, Credit Suisse said Thursday that it was taking an additional pre-tax loss of 594 million Swiss francs related to the hedge fund collapse.

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