From the NY Times…….
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.