Thanks to its solid export sector and decent domestic demand, Germany has managed to buck the trend in Europe with 0.3% growth in the three months to the end of June compared with the previous quarter. The figure is one basis point above the 0.2% growth that analysts were forecasting, and shows that the country remains the powerhouse of Europe. The country’s national statistics office said that there had been a 0.5% increase compared with the same quarter the previous year, adding that this would have been a 1% increase if Q2 this year weren’t one day shorter than last. Taken as a whole, the eurozone economy contracted 0.2% in the period.
So, well done Germany. But whilst they create more jobs, export more goods, and generally have a dandy time, things are increasingly sour for everyone else. Forget the fact that the UK is still firmly in recession, France is about to go into a double dip for Q3, and Spain is suffering 50% youth unemployment – yesterday everyone’s attentions turned back to Greece. It emerged that Greek productivity fell 6.2% for Q2 compared with the previous quarter, an economic contraction completely unprecedented in peacetime Europe. The strain that this puts on the country’s coffers means it will almost definitely need more bailout money than planned.
And that’s where Germany’s finance minister is waxing nasty. Angela Merkel’s right hand man, Michael Fuchs, has suddenly got uptight about those irksome Greek finances. He issued a stark warning to Greece yesterday that Germany would cut off its credit line if there were any signs that Greece was not adhering to the original bailout conditions. Given its dire – and worsening – economic situation, Greece desperately needs Germany to keep on giving. Through the European Commission and the European Central Bank, Greece is due to receive its next tranche of aid in September. Fuchs, who was speaking to German newspaper Handelsblatt, added: ‘We long ago reached the point where the Greeks must show they are capable of delivering a shift. A policy of the last, last, last chance won't work anymore and must come to an end.’
Very tough talk from Fuchs. And we can understand why the Germans are starting to feel a bit peeved – they are almost singlehandedly propping up Spain, Italy and Greece at the moment. But they’re damned if they do and damned if they don’t: Germany’s economic strength has come partly from its ability to sell its goods under the cheap euro, making its exports more affordable throughout Europe. If it still used the German mark, its prices would be too high and things would not be as rosy as they are. Germany’s economic power is not just a product of Teutonic brilliance – it’s the currency effect too, and relies on everyone else wanting to buy things…
And with that in mind, allowing any of those PIIGS countries to go to the dogs could mean the whole house of cards comes tumbling down. In his heart of hearts, does Fuchs really want that?