German GDP Growth Puts Rest of Two Tier Eurozone In The Shade!

Leave aside that the seven largest Eurozone economies managed to grow by an average 0.7% in the second quarter and concentrate the mind of the huge 2.2% jump in German GDP growth. Although a very creditable performance from Europe’s largest economy we believe the strength of Germany could cause increased friction amongst other Eurozone nations that are struggling to keep their heads above water. The concern is that a two-tier economy will seriously damage the Eurozone area. The point is that if Germany is growing on the back of predominantly export led growth and that other Eurozone economies are being left out in the cold is a fact that over time is almost bound to create increased friction amongst smaller Eurozone members. As was the case when the Eurozone area was founded eleven years ago and that due to the often significant currency and interest rate policy realignments necessary caused major upheavals in the individual Eurozone economies it seems that once again in terms of economic development Eurozone members are moving further apart.

Germany is not just the power house of the Euro economy it is also the powerhouse of the EU economy as well. Given the price that Germany paid for unification and that as a nation that unlike Britain chose not to turn its back on manufacturing it is very pleasing for many of us to see Germany prospering. While the level of German growth seen in Q2 may be just as good as it gets for a while with the Euro still down in the dumps and assuming the global economy continues to show some small overall recovery we have no reason to believe that Germany will not continue to benefit from being an export led as opposed to a consumer led economy. But we should not ignore the dangers for the rest of Euozone if German economic domination runs away too far. Arguably Eurozone has been a two tier economy since it was born. That has been manageable to a certain extent but now dramatically enlarged and maybe too fat a too powerful German economy may be too much for other Eurozone members to swallow.