More Bad News For The Euro Zone — German Economy Contracts In Last Quarter!

 

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From the NY Times…….

Slowdown in Germany Worries Euro Zone

BERLIN — Despite a drumbeat of optimistic forecasts from economists and upbeat statements from various European leaders, the actual news on the economy continues to be grim, with figures released Tuesday showing that Germany, the Continent’s flagship economy, contracted by about 0.5 percent in the final months of last year. Combined with a flurry of disappointing results recently in other major economies, the stumble raised questions about Europe’s ability to escape recession.

Portugal’s central bank cut its economic forecast for the year on Tuesday, saying its economy will contract more steeply than expected. France said it was likely to miss its target for narrowing the budget deficit, raising the prospects of deeper spending cuts and additional taxes. Last month, Britain said its austerity budgets would extend three extra years, to 2018, because of weaker than expected growth.

“This idea that Germany is a powerhouse dragging the rest of Europe along with it is a bit of a myth to be honest,” said Philip Whyte, a senior research fellow at the Center for European Reform in London. “You have a very weak periphery and a core which is not as strong as everyone seems to believe.”

Well, I think the quote here is a bit backwards.  I believe Germany will be fine.  The problem seen here is that Germany’s customers have run out of money.  Germany is an export nation.  Their biggest trade partners are other nations of the Euro zone.  They happen to be broke.  It isn’t that Germany isn’t a powerhouse, it’s the weight of all the deadbeat nations dragging them down. 

Germany’s public finances are robust. Federal, state and local governments recorded a surplus for the year equal to 0.1 percent of G.D.P., the first government surplus since 2007. That creates leeway for Ms. Merkel to stimulate the economy with public spending if the downturn is worse than expected.

That’s more backwards thinking, but will probably be the direction people will want.  Given the surplus, one could, if they’re so inclined, cut taxes and thereby stimulate the economy as opposed to taking from the public, hiring some cleptocrats and then give some of the money back. 

Germany could also give more money to the deadbeat nations, so that they could buy some of Germany’s stuff, or they can find different groups of people to sell their wares to. 

On a related note, Zacks asks if German ETFs are in trouble

Although Europe started 2012 with a bit of weakness, the troubled region managed to find its footing and finish the year on a relatively solid note. In fact, some are saying that the worst of the European crisis is behind us, and that the economies on the continent can finally begin to march back higher.

I’m not sure there’s a good basis for this thought.  What would be the impetus for the economies to start marching higher?  More taxes?  Experience tells us this will be the response for the shortfalls in budgets seen in other nations.  More taxes = less spending.  What’s going to start growing?  Not France, not Spain, not Greece…..

There are some neighbors to the north and east of Germany who are on better financial footing than some of the other Euro Zone nations.  Germany will simply open more markets elsewhere. 

The US seems to be winning the race to debase our currency.  We’re much better at it than the Europeans.  The strength of the Euro could also be hurting Germany’s exports. 

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15 Responses to More Bad News For The Euro Zone — German Economy Contracts In Last Quarter!

  1. philjourdan says:

    Overloading a lifeboat. It is what would have happened if some stupid liberal was in charge of the Titanic (no one would have survived).

  2. Latitude says:

    You need to read the Economist….they had a long write up about this about a month ago

    Saying we’re basically all toast

  3. DaveG says:

    The problems of Europe or any single country is over taxation and over spending, its a down ward spiral, a race to economic and social collapse.
    A flat tax,single sheet tax form would solve the problem within a short period of time. I would be bold enough to suggest a 10% flat tax rate starting at $1/ year. This is on income and !0% sales tax. So few individuals and corporations would try to avoid this as apposed to underground economy and tax avoidance which is rampant EVERYWHERE today, and I don’t blame them with the waste and excesses of most governments today.

  4. DirkH says:

    “That’s more backwards thinking, but will probably be the direction people will want. Given the surplus, one could, if they’re so inclined, cut taxes and thereby stimulate the economy as opposed to taking from the public, hiring some cleptocrats and then give some of the money back. ”

    The mentality of the Germans is that a majority of them is outraged by any tax reduction , because they think somebody else got more of an advantage than themselves. So they’d rather block any attempt at tax reductions.

    • suyts says:

      LOL, hard to argue with that logic! :D

    • philjourdan says:

      Hey! 47% of America is German! ;-)

    • cdquarles says:

      That’s probably because they think of tax reductions the same way Zero does, that is, as exclusions, deductions, or credits. A rate reduction will give everyone the same ‘break’, unless it is a weighted rate reduction (like the ones we had here … supposedly across the board, but ended up being weighted because of limiting deductions for some and allowing some to have refundable credits).

      • DirkH says:

        “A rate reduction will give everyone the same ‘break’, unless it is a weighted rate reduction ”

        A rate reduction by, say, a percent will give a person paying 10,000 in taxes 100; a person paying 20,000 will get 200. See how the rich manage to exploit us every time? Rate reductions play right into their hands! At least that’s what our socialists would say. And it’s of course true insofar as it would reward success more than failure. Something that the socialists have no interest in. Their voters are the failures.

        But an amusing statistic; due to the splits in our leftist block the SPD candidate is now at 19% approval rating while Merkel, CDU, is at 59%. No typo – 19% to 59%.

        Still, don’t hope for a tax rate reduction from the CDU. They have no reason to. Rather have more money to squander it on “saving”/dominating the Eurozone.

      • suyts says:

        LOL, you guys should just appoint Merkel for life! Yes, saving the Eurozone is working out so well!

        • DirkH says:

          Our socialist governments run the country so hard into debt that we always end up shell-shocked and vote conservative for the next 16 years. And as there are no term limits this means the same chancellor for quite a while.

        • suyts says:

          There is something to say for continuity.

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