Friday, 6 April 2012

EU austerity régime beginning to hurt German Economy

Germany is continuing to impose disastrous economic austerity measures all over Europe.

Senior German politicians and officials relentlessly plead for the continuation of the austerity policy, undeterred by the erupting recession in areas of the eurozone.

The policy became binding for almost all EU member-countries through the signing of the Fiscal Pact on 2 March. As the German Minister of Finance, Wolfgang Schäuble, declared on 6 March, by signing the pact Europe is on the “right path.” On 13 March the president of the Federal Bank, Jens Weidman, called for the southern euro countries, which are now slipping into recession, to apply “stiffer reforms” and additional austerity measures.

The austerity diktat is driving nearly all indebted southern European countries deeper into the recession, as shown by new data on the economic developments of Spain, Italy, Portugal, and Greece. 

According to this data, Portugal’s economy, for example, declined by 1.3 percent in the last quarter of 2011 and could shrink by up to 6 percent this year. Industrial production in Italy registered a sharp decline. In Spain, retail sales—an indicator of private consumption—declined by almost a quarter in comparison with 2007. Greece is approaching the economic level of countries in Latin America or south-east Asia, which up to now had clearly lagged behind European standards.

In the longer run the recession could have a backlash on Germany, because the massive slump is also affecting German exports. This could have serious repercussions. 

Where this austerity policy, imposed by the German government on Europe, will lead can be seen in Greece’s dramatic crash, which can simply be characterised as Greece saving itself to death. 

According to all predictions, in 2012 the country will remain in its fourth year of recession and continue to approach the economic level of the “Third World.”

The German business press predicts that if Greece’s economic contraction continues it will be bypassed by such countries as VietNam or Peru. A deeper recession could even saddle Greece with a GNP, in terms of buying power, lower than that of Bangladesh.

The German edition of the Financial Times speaks of a “historically exceptional” economic collapse.

"Some experts fear that the GNP for 2012 will again decline up to 8 percent, after an approximately 6 1⁄2 percent drop in 2011.”

This is “the worst recession that a western country has encountered since the war,” explains Barry Eichengreen, an economic historian at the University of Berkeley in California. 

In the end, Germany’s export industry will not escape the downward trend in the eurozone, despite its growing exports to so-called threshold countries. Orders from EU countries coming into German industry are dramatically diminishing. The business press reports, 

“Already since the middle of the year the quantity of new orders from countries of the monetary union has declined consistently, since the debt crisis resurged in the summer.” 

In other countries “a demand for German products has decreased also, because of their austerity measures.”

Berlin’s austerity diktat is ultimately threatening to push Germany’s export-dependent economy into a recession. Like the populations in Greece, Portugal, Spain and Italy today, the German population will most probably have to confront drastic austerity schemes. 

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