The German engine has seized, the country?s growth rate slowing to a halt. It dropped from 1.3% in the first quarter to 0.1% in the second. Consumer consumption and construction are ballasting the GDP, which is also affected by global economic torpor. The stock market shocks that Merkel underestimated will exacerbate the collapse and freeze investment and consumption, just as it happened in 2008.
More and more it is clear that it will be difficult for German consumers to toss aspersions to the rest of Europe and its aging population. Further, the latest figures put into question the rise in interest rates initiated by the European Central Bank. For if it were small, the cutbacks that everyone should submit to will exacerbate the contraction. And faced with such a possibility, what are Merkel and Sarkozy meeting about in Paris?
In the first place, yesterday broke with the traditional EU spirit of uniting against adversity. The measures they took invoked new impositions on the rest of us. They presented a proposal to create a ?true and united economic government,? comprised of European heads of state and led by Van Rompuy. They hope to get 17 member countries to incorporate new laws into their constitution that help them balance their budgets. They insisted on the need for creating a tax on financial transactions. They quantified the recovery fund. And they announced that France and Germany would attempt to match taxes on public limited companies by 2013.
With respect to the poor results throughout the European economy, they said that it had been something more than two bad quarters. So both countries once again playing out one of their ever-popular euro compromises. The debt limit is worth forming a proper proposal about, but still, isn?t meeting to make decisions about the European economy without coming to any consensus what our leaders have been doing since the beginning of the crisis? Why is this time going to be any more effective? It seems that France and Germany are trying to tell the markets one more time that they march to the beat of their own drum.
But the underlying problem, that a series of countries are experiencing problems with growth and getting financing for their debt, has not been addressed. Yesterday, Spain?s GDP figures dropped once again.
The Germans are not incorrect when they argue that risk premiums are necessary for maintaining incentive for reform. But if they are not fed up with the austerity plan yet, they should say so, because it is obliging the peripheral countries to preserve their savings. And they talk a lot about competition, but this battle is won at the expense of other things. Is Germany going to lose their competitive edge or force its citizens to consume more? Now that the double dip seems like a reality, investors are going to demand more than ever that the recovery plan is changed and that there is some sort of eurobond.
