Friday, September 23, 2011

“There are no more locomotives” in Europe, not in Germany, “Not anywhere”

A counterinstinctive nugget: The rich countries’ own agency for economic and social forecasting and analysis, the Organization for Economic Cooperation and Development, now projects that the German economy will fall sharply in the last quarter of the year, performing at bottom level among industrialized countries during the period.
Thus starts John Vinocur's article in the International Herald Tribune.
Germany’s research institutes don’t challenge the calculation. The Kiel Institute for World Economy even unveiled the “r” word last week, writing, “In no sense is it excluded that the economy falls into recession” — which would be two successive quarters without growth.

Coming at a point when Europe creaks like a foundering ship in a heaving sea of sovereign debt, and the world fights doubts about the European Union’s cohesiveness and stability, this is one ugly notion.

It challenges the assumption that a seemingly recovered German economy is the hard central core and example for the world economy that the government of Chancellor Angela Merkel has cracked it up to be. Combined with the effects of the sovereign debt crisis, it refocuses questions by German experts about the solidity of German banks.

Above all, inside Germany, it creates a reflexive populist scenario that would place the responsibility for a steep German downturn on spendthrift, layabout neighbors — reinforcing the Europe-isn’t-our-problem sentiment shown in a poll over the weekend that said 66 percent of Germans are opposed to further help not only for Greece, but to any other state with debt problems.

… After the O.E.C.D. report, Mrs. Merkel attempted to shore up that credibility by citing growth figures from earlier in the year and saying, “We’re the locomotive again” — one presumably chugging ahead, although imports are down, with everyone’s boxcar in tow.

I asked Wolfgang Franz about this. He is chairman of the German Council of Economic Experts, a counterpart of the White House council of economic advisers — the panel is officially independent of the chancellor though it meets regularly with her.

“There are no more locomotives,” Mr. Franz said, startling me with his directness. “Not anywhere.”