The collapse in European GDP revealed late Friday evening was astonishing.
For the Eurozone as a whole, GDP shrank 2.5 per cent in March quarter, compared to the December quarter (not an annual rate, as the United States reports).
German GDP fell 3.8 per cent, which is equivalent to an annual rate of -15.2 per cent (US GDP fell at annual rate of 6.1 per cent in that quarter). Germany, in other words, is in a depression.
Slovakia and Latvia – small, open economies that rely on manufactured exports – fell a staggering 11.2 per cent in the March quarter, an annual rate of -33 per cent.
For Australia, the unfolding disaster in Europe offsets the signs of a government-sponsored recovery in China. According to Austrade, Australian exports to Europe total $27.3 billion and to China, $26.9 billion.
Germany, in particular, is in serious trouble. Its economy is 40 per cent exports, which collapsed in January and February but recovered in March, yet 50 per cent of its population is on some kind of pension.
Chancellor Angela Merkel came out the other day and repeated an old mantra for German governments: “Die Renten sind sicher (the pensions are secure)", and she removed the traditional indexation of pensions to wages, which means they cannot fall as wages do (there’s an election in September).
Yet Germany’s budget deficit is now forecast to grow to 4.2 per cent of GDP this year and 5.9 per cent next year. The European stability pact requires budget deficits to be kept to within 3 per cent of GDP.
But the pensioner vote in Germany is so dominant that there is little hope of any government tackling the core of the fiscal problem: the generous pension scheme.
It is hard to imagine what will become of Germany if its export-based economy does not recover quickly. The pension system was already under pressure because of the aging of the population, which will mean that those in work and paying into state pension funds will decline by a third by 2050. Now unemployment is set to skyrocket as a result of its economy slipping into depression.
Meanwhile the nation’s banks are virtually insolvent as well. Last week, finance minister Peer Steinbruck, announced a “bad bank†plan, in which €200 million of toxic assets would be shunted into new vehicles that would be capitalised with government-backed bonds.
To paraphrase Leonard Cohen, this crisis first took Manhattan, and then it took Berlin.
For the Eurozone as a whole, GDP shrank 2.5 per cent in March quarter, compared to the December quarter (not an annual rate, as the United States reports).
German GDP fell 3.8 per cent, which is equivalent to an annual rate of -15.2 per cent (US GDP fell at annual rate of 6.1 per cent in that quarter). Germany, in other words, is in a depression.
Slovakia and Latvia – small, open economies that rely on manufactured exports – fell a staggering 11.2 per cent in the March quarter, an annual rate of -33 per cent.
For Australia, the unfolding disaster in Europe offsets the signs of a government-sponsored recovery in China. According to Austrade, Australian exports to Europe total $27.3 billion and to China, $26.9 billion.
Germany, in particular, is in serious trouble. Its economy is 40 per cent exports, which collapsed in January and February but recovered in March, yet 50 per cent of its population is on some kind of pension.
Chancellor Angela Merkel came out the other day and repeated an old mantra for German governments: “Die Renten sind sicher (the pensions are secure)", and she removed the traditional indexation of pensions to wages, which means they cannot fall as wages do (there’s an election in September).
Yet Germany’s budget deficit is now forecast to grow to 4.2 per cent of GDP this year and 5.9 per cent next year. The European stability pact requires budget deficits to be kept to within 3 per cent of GDP.
But the pensioner vote in Germany is so dominant that there is little hope of any government tackling the core of the fiscal problem: the generous pension scheme.
It is hard to imagine what will become of Germany if its export-based economy does not recover quickly. The pension system was already under pressure because of the aging of the population, which will mean that those in work and paying into state pension funds will decline by a third by 2050. Now unemployment is set to skyrocket as a result of its economy slipping into depression.
Meanwhile the nation’s banks are virtually insolvent as well. Last week, finance minister Peer Steinbruck, announced a “bad bank†plan, in which €200 million of toxic assets would be shunted into new vehicles that would be capitalised with government-backed bonds.
To paraphrase Leonard Cohen, this crisis first took Manhattan, and then it took Berlin.
