Tuesday, August 26, 2014

The German economy stalls

One of the things I learned in Finland was that they had MIXED feelings about the Russians / USSR.  On the negative side, there was the fact that Finland had been a long-time colony of Russia which had treated her like colonial subjects usually get treated, she had suffered great damage at the hands of the USSR in WW II, she had been forced to pay serious reparations to maintain some independence during the Cold War, and she had be VERY diplomatic because she shared this 833 mile (1340 km) border with a superpower.  On the positive side, the "secret" to Finland's high living standards was living next to this huge market with staggering amounts of raw materials to pay their bills.

So when Yeltsin and the neoliberals screwed up Russia's economy in the 1990's, Finland's went into freefall.  But what made this economic catastrophe such a good object lesson for me was watching the Finns chose the prosperity for today over the meaningless luxury of obsessing over the hurts of the past.  Yes there were problems dealing with the Russians but in the end, they were more than worth it because Russia is a serious economic force—simply as a market.

Now it Germany's turn to learn that lesson.  There is a widespread belief in Germany that they deserve to be richer than everyone else because they make better products than anyone else.  Unfortunately for them and their Producer Class arrogance, it doesn't make a whole lot of difference how good your products might be if no one is buying.  German austerity crazies have forced upon the rest of Europe a contracting economy that can no longer afford German excellence.  The Chinese are still buying but even that huge market is finite.  This means the Germans cannot afford to lose the Russian market they worked so hard to create.  With the EU on its back, the difference between a prosperous Germany and one in trouble is pretty damn small—smaller than the size of the Russian market.

German business confidence shattered, lowest in 13 months

RT August 26, 2014

Business confidence in Germany, which has led the EU economic revival over the last year, declined for a fourth month in August, which further clouded prospects of a broader recovery across the EU.

Germany’s Ifo Business Climate Index in manufacturing, which looks at the confidence of the country’s 7,000 firms, fell to 106.3 in August from 108 in July.

It’s the lowest figure since last July, marking the longest successive monthly decline since 2012, the report said.

Monday’s figures come after frustrating economic data for the second quarter. It showed Europe’s biggest economy contracted 0.2 percent during the period, after it grew 0.7 percent in the first quarter. Much of the unexpected drop is attributed to the effects of the crisis in Ukraine that has led to a tough 'sanctions war.' Even after the disappointing second quarter, Germany believes it will achieve 1.8 percent growth this year. By contrast, the UK, which is not part of the euro currency zone, showed its strongest quarterly economic growth in 6 years, with 0.8 percent in the second quarter.

In July German businesses began to send clear signs they are suffering from the political standoff with Russia – one of its key economic partners.

German Chancellor Angela Merkel has confirmed that the growth of the country’s economy has been hit by the crisis in Ukraine.

"There are, however, some uncertainties - I don't want to conceal that - the whole Ukraine-Russia situation shows that we of course have a big interest in our international relations being constructive again," Merkel is cited by Reuters.

But the Chancellors stressed that she still thought the overall annual growth rate of the economy would be “good, if nothing dramatic happens."

German sports retailer Adidas said it would speed up efforts to close stores in the Russian and CIS markets in 2014 and 2015. Carmaker Volkswagen, that’s also Europe’s biggest manufacturer, said it sold eight percent fewer vehicles in Russia in the first two quarters compared to last year.

Russia is Europe’s third-largest trading partner, in 2013 trade between Germany and Russia was €76.5 billion.

Germany’s exports to Russia may go down by 25 per cent this year, the union of leading associations representing German businesses said in a statement.

"It is possible that by the end of the year our exports to Russia will decline by 20-25 per cent. It will affect some 50,000 workplaces in Germany,” Eckhard Cordes, the chairman of Germany’s Committee on Eastern European Economic Relations, stressed.

The main reason for the Eurozone’s poor GDP growth are the sanction imposed by the EU against Russia, Michael Mross, chief editor of MMNews.de website, told RT.

“When you take, for example, the big German companies – almost every big German company has close business ties with Russia… Everybody is suffering more or less. In the end of the day, this has not only psychological effect, but a business effect,” he said.

Russia is a large market for not only Germany, but for all European markets, which is why it is important to keep relations functional.

“We have a enough problems here in the Eurozone. And this is something we don’t need. And if you speak to business leaders behind closed doors – they’re all against these sanctions,” Mross added.

‘Stunningly destructive’ austerity policies

Many have voiced concerns over Germany’s push towards economic austerity, a Spartan-spending effort to re-balance the eurozone. In the spring, many of the so-called ‘Euro-skeptics’ won in the European parliamentary elections.

On Monday, the French government resigned just four months after it was formed after the May elections.They quit after ministers attacked President Francois Hollande's plans for taxation and cuts, and over a major disagreement with Germany’s austerity program.

France, which as long stood with Germany politically, decided to put an end to unpopular austerity policies back in May.

Not only politicians doubt the direction over the 18-nation currency union. Europe is still shaking off its seven year recession, which has brought economic growth to a standstill and unemployment to record levels. Recovery has been described by Nobel Prize winning economists as both “stunningly destructive” and a “dismal failure.” more

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