Germany has been the economic powerhouse of Europe for decades. But I am not sure for how much longer.
DeutscheBank is looking to be in serious financial trouble. When a bank admits it is having to write off the value of investments it rarely states the full extent of the problem on the first occasion when it does so. There is speculation that without serious capital injection DeutscheBank may not meet regulatory requirements. No wonder dividends have been cancelled.
VW is in trouble as well. It's admission that senior US staff knew of emissions non-compliance in early 2014 is damning: it has participated in mass fraud since then. Will the company survive that? I am really not sure.
Now two companies in trouble may not be a trend, but these two are iconic German companies that touch a nerve in the national psyche and the international perception of the country. The impact of these problems will be significant, most especially if, as looks likely, a global downturn is on its way. When such things happen the duration of the cycle is at least partly dependent upon the ability of the strongest states to pull through quickly. In this case there may be an economic power vacuum at the heart of Europe with a wounded and down-beat Germany unable to take any lead. And that has implications far beyond its own borders, not least for the survival of the EU itself.
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I think you are forgetting the 90s & early naughties when Germany was the sick man of Europe, as the cliche has it. Joining the euro gave FRG over-tight monetary policy. The response was deflationary policy which is now extended to the rest of the Eurozone. Unsurprisingly deflationary policy leads to deflation.
Germany’s current problems come from its reliance on net exports and were predictable, indeed predicted by people like Philippe Legrain.
Germany’s current problems come from its reliance on net exports
Germany doesn’t rely on net exports. If every major developed country was forced to sign an agreement requiring their trade imbalances to be kept to within sensible limits (say +/- 2% of GDP), Germany would get along just fine! Germans, themselves, would be better off. Instead of making and supplying more stuff for the rest of the world’s benefit they would be keeping more of it for their own use. There is no point swapping more real goods and services for fewer real goods and services, year in and year out, and accumulating the IOUs of other countries which they will never use.
The problem is that most Germans think they rely on net exports, which isn’t quite the same thing. They have been conditioned to think of imports as bad and a sign of weakness, but exports as good and a sign of strength! They think all successful countries should have an export surplus! They want the EZ to be successful with each country exporting more to other eurozone members than each country imports from other EZ members!
The Dutch are even worse. The German trade surplus is ‘only’ 7.5% of GDP. The Dutch surplus is 11% of GDP! Don’t the intelligent citizens of these countries see the problem? If their economies are sucking euros out of the economies of their trading partners in the EZ, why are they surprised when their partners run short and find themselves in debt? Why do they then scratch their heads in bewilderment and lecture them on the perils of deficit spending?
Good points.
We shouldn’t forget that imports are benefits for the importing country’s citizens.
They get to consume goods and services that they expended no effort in producing in exchange for, effectively, pieces of paper.
Not surprising at all, Deutsche Bank has been the most over leveraged bank around, something like 60:1 More toxic debts on the books eh!
The Volkswagen scandal will run a long time, and raise the same questions about the integrity of engineers as did high speed trading. But the new DeutscheBank head reducing its core capital ratio by 4/1000ths won’t much bother the general German population overly much, and lot more of them will having a relaxing bike ride or a punt this weekend than here in Britain.