Deutschland Deutschland über Alles!

Reacting to Germany’s surprisingly strong economic development in the second quarter, German economic experts have raised their growth forecasts for 2010 to as high as 3.4 percent.

Is this good news for France?

“Yes, but…” says Le Monde (August 20).

“It’s true that the 0.6 percent increase in the [French] gross domestic product is a very respectable achievement…but it’s four times less than the increase in Germany…. The sharp rise in Germany’s economic performance will spoil the celebrations in Paris. Indeed, if the French economy falls behind its most important trading partner, the consequences could be disastrous. So far France has been spared the debt crisis that has hit countries in Southern Europe. The country even found itself on the good side – that of Germany…. But the surprising surge on the other side of the Rhine threatens this concordance. The risk is clearly…that the famous ‘spread’ between the interest rates in the two countries will grow larger.”

Is it good news for Poland?

“Yes,” says Rzeczpospolita (August 23).

“As economists are saying across the board, the German Mercedes tanks up with fuel from the economies on the edge of the Eurozone. The good economic results have led the German Federal Bank to radically adjust its economic forecasts upwards – anticipated GDP now stands at three percent. Let’s not forget, the German economy shrank by as much as 4.7 percent in the past year. So what happened? Exports have shot up on the other side of our western border. Solid, although less dynamic growth is also expected in the next quarter. Domestic demand has been influential here, and that is also good news for Poland. Our exports to Germany are growing and stand to become even more dynamic.”

“Yes,” says the Dutch De Volkskrant (August 23).

“The country that had to save the most money – primarily to pay for the reconstruction of the former GDR – is in the best shape in Europe today. That gives the German government considerable backing in its resistance to recovery measures undertaken in other parts of the world. Standing in contrast to the U.S. model – holding back on government saving until consumers can once more take over the role of economic motor from the state – is the German model, which combines thriftiness with the social mandate of Rhine capitalism. Germany is accused abroad of growing at the expense of other EU countries…. However this doesn’t seem to be borne out by the facts. German imports have grown even faster than exports in recent months.”

“No,” says Justice Litle, Editorial Director, Taipan Publishing Group in China.
(August 23), under the heading, “Germany’s Exports Spell Doom for the Eurozone.”

“Remember the Eurozone’s big crisis? The one that everyone thought had blown over? Well, it isn’t over. Like a multi-act play, it’s simply been in a period of ‘intermission.’ And the next act is going to be much, much worse than the first. In due time, the Eurozone will disintegrate. And Germany will be the cause.”

This may seem a strange assertion, because recently we’ve heard cheery news from Europe – and from Germany in particular. Just over a week ago, Germany reported its fastest economic growth in 20 years. At 2.2% quarter over quarter, that’s a blistering annualized growth rate of almost 9%.

We are used to emerging market powerhouses like China and India growing that fast – but staid old Deutschland? Wow.

As usual, though, the headlines don’t tell the whole story. The Panglossian optimists, ever determined to look on the sunny side of everything, have as usual gotten the key elements wrong. To understand why – and to explain why the Eurozone is still headed for a crack-up – let’s begin with Greece.

When the Greek debt-crisis hit the front pages earlier this year, the story was encapsulated in photographs. As fiscal austerity measures descended, riots broke out in the capital. “Firebombs in the streets of Athens” told the world what it need to know.

Since then, economic conditions on the ground in Greece have not improved. In fact they have grown far worse. And some believe it is only a matter of time before the whole of Greece, not just Athens, bursts into metaphorical flames of rage.

The German publication Spiegel Online openly questions whether Greece could be “Entering a Death Spiral.” With brutal frankness, Spiegel writes:

“The entire country is in the grip of a depression. Everything seems to be going downhill. The spiral is continuing unabated, and there is no clear way out. The worse part, however, is the fact that hardly anyone still hopes that things will improve one day. Menelaos Givalos, a faculty member with the University of Athens, foresees ‘extreme social consequences’ when a new wave of Greek layoffs begins in September.”

Nikos Meletis, a shipbuilder quoted by Spiegel, warns that “If you take away my family’s bread, I’ll take you down – the government needs to know that.”

“Things are starting to simmer here,” Meletis adds. “And at some point they’re going to explode.

“Implying, of course, that things haven’t exploded already, which they haven’t. At least not on the scale we could see sometime in the near future.

“The economic pain in Greece compares to Great Depression levels. The IMF has forecasted 14.8% unemployment in Greece by 2012, but other forecasters see unemployment as high as 20%.

“Worse still, as reported by a University of Piraeus study, Greek unemployment in some areas has risen as high as 70%. Think of that – seven out of 10 men (and women) without jobs. It is perhaps no wonder that, on walking through Athens, one can find streets where a quarter of the shops are closed.

“These are the fruits of forced austerity, and the straitjacket of a rigid currency union that Greece cannot abide. At the 1896 Democratic National Convention in Chicago, William Jennings Bryan made political history in declaring “You shall not crucify mankind on a cross of gold.

“Greece is now being crucified on a cross of euros.”