Southern Europe's Recession Threatens to Spread North
Comment of the Day

April 26 2013

Commentary by David Fuller

Southern Europe's Recession Threatens to Spread North

This is a worrying article published by the NYT and IHT. Here is the opening
FRANKFURT - No company symbolizes German industrial might like Daimler, the giant maker of Mercedes-Benz autos and trucks. So when the company said this week that it, too, had finally been caught in the downdraft of the European economic crisis, it was an ominous sign for all of the Continent, if not the whole world.

German exporters like Daimler have been bastions of stability on a continent burdened with shaky banks, dysfunctional governments and legions of unemployed youth - not to mention the worst auto industry slump in two decades. But Daimler's glum forecast for 2013 was the latest evidence that Germany, and other relatively healthy countries like Austria and Finland, risk falling into the recession that has long afflicted their southern neighbors.

The slowdown in Germany was foreshadowed by months of declining industrial output, said Carl B. Weinberg, chief economist of High Frequency Economics in Valhalla, N.Y. "The E.U. has made Europe a much more cohesive economy, which is good when things are going up," he said. "But when things are going down the multiplier is very strong. An outgoing tide lowers all ships."

The region's overall economic weakness as well as slowing demand in China and other big markets for German exports of consumer products, cars and sophisticated machine tools, industrial robots and construction equipment are finally taking their toll.

Just one more consecutive quarter of shrinking economic output and Germany would officially enter a recession. The same is true of Belgium, France, Luxembourg, Austria, even Sweden and Finland. The Netherlands has already suffered two quarters of declining gross domestic product.

Further evidence of the spreading European recession came Thursday, first from Madrid, where the Spanish government reported that unemployment had reached a record level: 27.2 percent. Then new economic data from London indicated that Britain had barely avoided slipping back into recession for the third time since 2008.

David Fuller's view Germany is a giant among manufacturing countries, noted for the quality of its machinery. German cars are legendary for their reliability and the world's best, in my opinion, for middleclass consumers. I also think that Germany today is one of the world's most civilised countries.

So what has gone wrong? Obviously Germany is not immune to Europe's economic problems but its exports are competitive in so many of the world's other countries. The soft euro is advantageous for German exports.

My answer is that energy problems are a self-inflicted wound for Germany. After Fukushima, Germany announced that it was shutting down its successful nuclear industry, which was dated, but I have yet to see evidence that it intends to replace it with considerably safer modern nuclear plants. Germany has shale gas and oil which could dramatically reduce its energy costs but I see no collective will to develop these valuable resources. Instead, it imports expensive oil and gas. Worse still, Germany has windmills everywhere, which are unpopular and have increased its energy costs. They have also increased atmospheric pollution in Germany, indirectly, because the unpredictability of wind energy means that it has to be backed up by conventional coal fired power stations.

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