German GDP just continues to grow whilst the majority of the rest struggle to survive. A slight exaggeration perhaps but if evidence was needed of just how unfair the existing one size fits all standard that is the strategy of the European Central Bank then look no further than the first quarter 2011 GDP numbers from Germany to see that while it works for one it just isn’t working for the rest.
Despite the grotesque sight of a still worsening sovereign debt crisis that has over the past few months ‘forced’ fellow Euro Member States such as Greece, Ireland and Portugal to go cap in hand to EU and IMF authorities for bail out funds it seems that while these nations suffer, the engine state of the Euro-economy continues to expand at the expense of others. With some eurozone nations now headed into recession as they are forced by the authorities to make severe and in most cases overdue cuts in public spending and to increase taxes these are tough times for some eurozone Member States that thought the long period of growth might never end.
Back in Germany it is a very different story. Not only did first quarter German GDP growth beat most analyst forecasts at a seasonally adjusted 1.5% it actually trashed them. Heavily export orientated German exports now account for around one third of the nations national output. In March alone German exports surged by 7.3% to the highest value since 1950 and at 7.1% unemployment here is not only running at its lowest level in the past nineteen years it is close to being the lowest within any eurozone economy. Germany has of course long been a strong advocate of closer European integration and yet these days its politicians often speak with forked tongues. Not surprisingly the Euro which some believe may be as much as 25% overvalued against the dollar surged on news of yet another rebound in German economic growth. Each rise in the Euro against the dollar, pound, yen or other currency makes exporting at a competitive level just that little harder. For Germany which is heavily manufacturing orientated and where exports are a key element of macroeconomic policy the situation appears to be manageable due to its huge scale. But for most other members of the pack of struggling eurozone economies a rising Euro and relatively high interest rates is hardly fun.
Contrast 1.5% first quarter GDP growth in Germany and the smaller 1% gain in French GDP with the equally better than expected 0.8% figure Q1 growth across the whole eurozone region and it may highlight that something is wrong.
The stranglehold that Germany and France have on the Euro is increasingly plain to see and as each day dawns it appears to get worse. And yet, as few will have failed to notice, for self political ends senior German politicians continue to throw their toys out of the pram by constantly objecting to EU provision of bail out support for those nations that, through the lack of diligence of themselves and the EU and eurozone authorities, are struggling. The arrogance of Germany in the manner that it slates those who failed to keep their deficits in check knows few bounds in my view and yet I might ask where was the voice of Germany in the earlier years of the Euro’s existence demanding that that deficit and borrowing rules were strongly adhered to buy all Member States? The answer is that they where nowhere to be heard.
As Europe’s sovereign debt crisis continues to cut a swathe of discontent in global financial markets the powers that be in eurozone and the EU appear content to close their ears and eyes to any criticism that suggests Europe’s single currency system failed at the first hurdle. It is of course in the interest of all of us whether we happen to be in the Euro or outside or whether we love or hate the concept of the Euro and the EU that the current appalling sovereign debt situation is handled with great care.We may well know that at some point Greece will have no choice but to default and we may feel very sorry for the Portuguese who really did very little wrong. It is of course yet possible that other nations such as Spain may also need to request support from the EU and the IMF over the coming month although I for one doubt that will occur. Whatever, we may be assured that for some considerable time the printing presses of the Euro are going to be kept very busy.
Whatever might pan out for the weaker countries that have failed to contain spending and balance their national accounts I take the view that if the eurozone authorities are to persist with a one size fits all strategy on Euro interest rates we can assume that the potential for the larger majority of Euro Member States to equal the growth level being enjoyed by Germany can only be slim.
The UK and the handful of other European nations that elected to stay outside the common European currency can with the benefit of hindsight be thankful that they did. It is true that the single currency concept has many advantages in terms if intra European trade but the bottom line is that a common currency can only truly work if political union has also been achieved. Chances of that occurring during the lifetime of most who are reading this issue of ‘The European’ are now thankfully slim. Of course, for these nations that stayed outside the eurozone area by choice restraint on growth still comes in the form of the extended bureaurocracy that is the EU today and of its burgeoning regulation. Somehow I may believe that the world has moved on and that the eurozone authorities and those in the EU offices in Brussels and elsewhere are ignoring that day by day, week by week, month by month and year by year economic power continues to shift from west to east. Tied up in knots over sovereign debt and many other issues the European economy is being left behind. Not Germany of course and not France. Like ships of state all but oblivious to the rest of mankind the leaders of these two nations care not for the plight of those others that it encouraged into the eurozone fray. For Germany it is a case of you really can have your cake and eat it as it steams on a solid upward trend of growth leaving its eurozone partners standing behind. Something will soon have to give.
The bottom line is that both Germany and France start thinking outside the box realising that the eurozone area as a whole can no longer cope with one size fits all interest rates or the situation will get much worse. For many the thought that German arrogance could eventually lead to the potential break up of the single currency will of course bring a smile but others will realise that turning the clock back is not an option. The single currency concept is indeed a fine enough idea provided that all those who join it can benefit on the basis of a level playing field. In the current format and having expanded its membership far too fast operating on a level playing field basis is just not possible. Time then to start thinking again!
