Europe’s Troubles Finally Trap Germany

Investing

Published: February 22, 2013 6:14 am

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Germany finally came face-to-face with deficit- and austerity-crippled Europe. Its Federal Statistics Bureau (Destatis) confirmed that its gross domestic product (GDP) fell 0.6% in the fourth quarter. The agency added that exports were the primary culprit. Germany’s support of austerity has come home to haunt it as the weakness of its neighbors has begun to cripple its economy.

Destatis reported:

Foreign trade had a negative effect on the German economic development in the last quarter of 2012, according to the provisional calculations. Exports of goods and services were down 2.0% compared with the third quarter of 2012

There is no telling what stimulus measures for nations such as Spain, Italy and Portugal might have done to improve Europe’s economy enough to have helped Germany. Now that France has moved into recession, even the region’s second largest nation by GDP could use some propping up. Most of the work to stimulate the economies of Europe’s nations would have had to begin at least a year ago to effect current results. Germany’s leader, Angela Merkel, favored austerity so aggressively then that there was no chance nations could try any other solution. Even if Europe switched on some kind of stimulus package now, it would not help Germany immediately. If it needs any proof for that, it can look at the United States’ $787 billion stimulus in 2008.

Ironically, Germany would need to pay for a lion’s share of any stimulus aid because of its place as Europe’s paymaster.

Germany gets to ponder whether its should join with the International Monetary Fund, European Central Bank and other countries to try new methods to help Europe financially. Investment in Europe is not popular among German voters. And Merkel is up for reelection this year, which means she might wait until after those elections to float stimulus plans. That would push the work into 2014, if the work gets done at all.

Germany’s approach to Europe’s deficit and economic crisis has backfired.

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