Germany: Dead Economy Walking

Germany is the key to the EU economy. This is not news.

What is news is that Germany’s economy is in the toilet. Not slowing down…. not hitting some bumps.

The Germans are industrial and exporting powerhouses. And the trends for those two things have been in decline for over a year.

Balance of trade for the past two quarters have been the lowest they’ve been since 2016. And the euro has backed off 13% since January of 2018. That’s because so much of Germany’s exports are to other EU countries and they are loaded to the gills with debt.

Furthermore, a big miss to the German Manufacturing Purchasing Managers Index (PMI) in March was confirmed this week by April’s number which was just as horrific. The March 22nd release missed by over 3 points to come in at 44.7 versus expectations of 48.0 (Anything under 50 is considered contraction). Contraction happened (again surprising the market) in February.

In fact, it’s been nothing but misses, some of them similarly horrible, since the beginning of last year.


This is just the most dramatic of falling German economic indicators. But it’s across the board.

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Downtrend in Place Since 2017

This is putting Germany on the road to recession.

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Again, this isn’t news to anyone watching markets carefully. I present it to cut through the insanity surrounding Brexit and provide some context.

I’ve described Brexit as an existential threat to the EU. It is that and so much more. And it is why everyone on both sides of the channel are working so hard to undermine it.

In my latest for Strategic Culture I name names.

The EU does not want Brexit and if it were to happen it will inflict incredible damage to the British political system and its integrity.
This is really no different than what happened in Greece in 2015. And it was directed by Angela Merkel than and it is being directed by Merkel today.
The EU’s intransigence in negotiations, aside from it having no other option, is an elaborate bluff to separate and divide the British political class, now that the people have voted to leave.

I find it pathetic to see Merkel on a charm tour in Ireland this week to present her Mutti Merkel side to help ease the pain of Theresa May’s open betrayal of the British political system.

Now that the fix is nearly in Merkel and Donald Tusk are playing good cop to Guy Verhofstadt’s frothing-at-the-mouth bad cop.

Germany’s descent into economic malaise now is Merkel’s biggest problem, though I doubt she’s fully cognizant of the implications. Everyone suffers from normalcy bias and for her the European project should be strong enough to weather any storm.

But, what if it isn’t?

The conventional wisdom is keeping the U.K. in the EU as a tax cow is paramount to ensuring continued German dominance over the bloc. And, I agree that is the thinking in Brussels.

But, I’m coming to believe that the reality is different than the mindset of the perpetrators.

So, I make the counter-argument that, in fact, Germany and Merkel have already lost the war to hold the EU together, regardless of Brexit. Destroying the British political system will not make the Brits easier to control, but rather harder.

It will not scare the recalcitrants like Matteo Salvini of Italy and Marine Le Pen in France. It will enrage them.

A failure of Germany’s economy to hold the bloc together will ricochet back on Germany’s leadership of the EU very quickly. We’re seeing this in French President Emmanuel Macron’s open defiance of Germany on Brexit.

So many people, including Remainers in London, make the argument that they can’t survive against a bigger, stronger economy like the EU’s, namely Germany’s.

So much of what the EU is built on has been the willingness of everyone else to suffer Germany’s visions for integration as long as Germany was willing to fund it.

But, that’s looking more and more to not be the case into the future. The EU has nearly reached the limit of internal transfers which paper over how weak Germany’s long-term economic prospects are under the current political rubric.

There comes a point when a simple slide into recession is not just another cyclical downturn that can be papered over by more central bank credit and wizardry.

It becomes something the politicians can’t strong-arm away and the media can’t sugar-coat.

Germany’s recession is here because of the structural problems of the EU’s fiscal black hole. It’s resulting in obvious capital flight into U.S. assets — the dollar, stocks and bonds simultaneously.

It has pushed up the price of safe-haven assets in Europe beyond absurd levels. And yet, no one dare call this a crisis!

And because there is still some slack yet in the German economy, it hasn’t fully expressed itself yet at the consumer level. So, that gives everyone enough wiggle room to talk the talk. But, savings is rising rapidly while consumer spending is topping out.

The news is still mixed enough that it hasn’t begun to hurt Merkel further politically.

Just wait. It will be.

9 thoughts on “Germany: Dead Economy Walking

  1. The EU has hit a wall and therefore the German economy as well. The last time countries added to the EU were in 2017. These were more American projects saddled on the EU and not really economically growth markets.

    The EU being predicated on adding populations with a predilection toward German products and allowing German companies to buy up competing industries or anything of value in those countries to eliminate competition. The 2007 countries added to the EU were for the most part industrial. The 2013 addition were agrarian for the most part. The population addition were comparable and the sudden increase in salaries ( basically gov employees ) spurred the buying sprees, while indenturing the new govs with IMF loans.

    The key has always been to add more populations to maintain the growth and spending. Probably something that drove the Ukraine crisis, 45 million new customers who worship German products, tough to pass up. When that failed, you import your customers, it seems. They send money home, buy EU products and/or spend it in the EU. One small problem developed, the local population revolted.

    So, now Merkel finds herself in a predicament, loss of British cash payments to the EU, the PIIGS, populist nationalism on the rise and an economy teetering and no way to threaten or bribe with Euro/Marks a population of 1/2 billion people. This’ll make the French or Russian revolution’s look like Sunday picnic’s. It’s a shame they went for political control rather then being satisfied with what they had. Hubris and greed are always the keys to ones own destruction.

    • Very well put. I said in a livestream recently, that the EU reminds me of late Ballmer-period Microsoft. Growth via acquisition of competition to protect the cash cows of Office and Windows.

      It’s the same with Germany’s car companies. Bolt on a few Baltics and Balkans and viola! Growth! But, not really. The balance sheet has been hollowed out and the debt to equity ratio is terminal.

      New leadership is coming and quickly.

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  3. Window dressing language can’t hide Germany’s intention to dominate the EU. The SWP 2012 paper “Neue Macht, neue Vearntwortung” reveals a similar kind of zero sum primacy thinking driving the US madness.

    Merkel’s “Mutti” image hides the power politics of Germany. Germany’s too low exchange rate while entering the Euro was by design to create continuous surpluses in order to dominate the EU.

    The price for that policy is now paid by the subservient southern European economies having trade deficits and also by German pensioners being entitled to such limited pensions that even in their middle seventies are forced to look for part time jobs to survive.

    • Merkel was inserted as a safe, reliable, pair of hands. Woman, from the East.

      Even in a Brockhaus Encyclopaedia of 1992/3 she has an entry and picture, then gaining position at breakneck speed so soon after the fall of the Wall. Friedrich Merz was disgusted how Kohl presented her as fait accompli. He would have liked to be chancellor, Merz, but left to make money because of Merkel being promoted by higher forces. Merz is a shocking neo-con, but that’s another matter.

      i had an aunt in the organisation where Merkel’s parents worked in Berlin (Missionshaus) and remember from my childhood days visits to the East hushed conversations about a STASI mole. You can never say with certainty but I believe her parents were double spooks. There has to be a reason or two why some files were ‘repatriated’ to the US from STASI. Merkel would have been totally system conform in the East or she would not have been able to study in Moscow. But there she is protected, too, or the Kremlin would have published her KGB file. Then she turned system-conform with the new system.

      Among the Russia haters (Natalie Nougayrede of the G) Merkel was described as the ‘new leader of the free world’. Everything she did was always, after long periods of oh so careful considerations, the US line. That was destined to create a mess. Germans now pay for the failed policies under Merkel and somehow i even feel happy my brother is no longer there to experience it all, because he was not Colluding Class and had been trodden enough.

  4. “The EU does not want Brexit and if it were to happen it will inflict incredible damage to the British political system and its integrity”.

    Of course the very fact (if true) that the EU is able to inflict damage on the British political system is the strongest possible argument for Brexit.

    Such a thing should never happen to a sovereign nation, and if it is true that the EU has that power, it is a huge indictment of successive British governments on whose watch it has happened.

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  6. Sorry Tom, this article is nonsense. German people are no consumption junkies. Germany is not a weak country. It is resilient and has enough power to maneuver. Brexit will not happen either!

    • Tom,

      I never said the German people were consumption junkies. I said their consumption hasn’t rolled over. Germany isn’t weak, but it needs to be extraordinarily strong given current circumstances.

      If you don’t understand that then you don’t understand the bigger picture at all.

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